Hos

November12,2015
HORNBECKOFFSHORESERVICESINC.
HOS/NYSE
ContinuingCoverage:
HornbeckOffshoreStaysAfloatasthe
Company RidesouttheStorm
Wall Street's Farm Team
InvestmentRating:MarketOutperform
PRICE: $12.44
S&P500: 2,045.97
DJIA: 17,448.07
RUSSELL2000: 1,154.81
Depressedoilpricestoreduceexplorationandproduction(E&P)activity,driving
downdemandforHornbecksvessels
Strongcashholdingsandfavorableseniornotetermstohelpweatherthestorm
Relianceonshorttermcontractsmaysubjectrevenuestogreatervolatility
Endofnewbuildprogramincreasesfuturefreecashflow
PoliticalandeconomicchangesinBrazilandMexicotoopennewopportunitiesin
theregion
Our12monthtargetpriceis$15.00
Valuation
*EPS
P/E
CFPS
P/CFPS
2014A
$2.43
5.1x
$4.90
2.5x
2015E
$2.44
5.1x
$6.47
1.9x
2016E
$1.13
11.0x
$3.49
3.6x
*Netofnonrecurri ngevents
MarketCapitalization
EquityMarketCap(MM):
EnterpriseValue(MM):
SharesOutstanding(MM):
EstimatedFloat(MM):
6Mo.Avg.DailyVolume:
StockData
$445.35 52WeekRange:
$1,223.59 12MonthStockPerformance:
$12.20$32.67
60.84%
35.80 DividendYield:
31.30 BookValuePerShare:
1,185,000 Beta:
Nil
$40.37
1.46
CompanyQuickView:
Thesefolksdontownthebiggestfleetofoffshoresupplyvessels(thatsTidewater)but,
theonesitdoeshavearesomeofthemostsophisticateddeepwatervesselsinthe
world.HornbeckOffshoreServicesInc.providesmarinetransportation,subsea
installationandaccommodationsupportservicestoexplorationandproduction,oilfield
service,offshoreconstructionandU.S.militarycustomers.HeadquarteredinCovington,
Louisiana,HornbeckservicesclientsprimarilyintheGulfofMexico,Brazil,andMexico.
CompanyWebsite:http://hornbeckoffshore.com/
Analysts:
SamFihma
DanielGoldbaum
SpencerKaufman
GarrettLangfeld
InvestmentResearchManager:
EvanKoehler
BURKENROAD REPORTS
The BURKENROAD REPORTS are produced solely as a part of an educational program of Tulane University's
Freeman School of Business. The reports are not investment advice and you should not and may not rely on
them in making any investment decision. You should consult an investment professional and/or conduct your
own primary research regarding any potential investment.
HornbeckOffshoreServices(HOS)
BURKENROADREPORTS(www.burkenroad.org)
November12,2015
Figure1:5yearStockPricePerformance
Source:Yahoo!FinanceNovember12,2015
INVESTMENTSUMMARY
WegiveHornbeckOffshoreServicesInc.aMarketOutperformratingwitha12monthtarget
priceof$15.00.Toarriveatthispricetarget,weusedtherelativemultiplemethodwiththe
followingfinancialratios:pricetoearnings(P/E),pricetobookvalue(P/BV),enterprisevalue
toearningsbeforeinterestandtax(EV/EBIT),enterprisevaluetosales(EV/Sales),andpriceto
cashflowspershare(P/CFPS).
Hornbeckwillfacethefollowingrisksintheshortterm:lowoilprices,environmental
regulationthatcouldlimitoffshoredrillingactivity,violationsoftheJonesActbyforeign
competitors,exchangeraterisks,creditrisk,anduncollectibleaccountsrisks.However,
Hornbeckwillbeabletosurvivetheserisksduetoitsstrategicmanagementdecisions,
attractivelongtermdebttermsandmaturities,versatilelongtermandshorttermcontract
strategy,andincreasingfreecashflow.
Table1:HistoricalBurkenroadRatingsandPrices
ReportDate
3/18/15
3/28/14
3/20/13
4/2/12
3/21/11
4/12/10
4/6/09
4/4/08
3/30/07
StockPrice
Rating
12MonthTargetPrice
$20.30
MarketOutperform $26.00
$40.75
MarketPerform
$47.00
$44.99
MarketPerform
$47.00
$43.37
MarketPerform
$35.00
$30.99
MarketPerform
$35.00
$20.89
MarketPerform
$24.95
$16.36
$46.67
$28.65
Source:PastBurkenroadReports
November12,2015
INVESTMENTTHESIS
Our12monthpricetargetof$15.00andMarketOutperformratingisduetotherecent
downturnintheoilandgasindustry.
DepressedoilpricetoreduceE&Pactivity,drivingdowndemandforHornbecksvessels
ThepriceofoilwillhaveasignificantimpactonHornbeckOffshoreServicesInc.sfuture
outlook.Thelowcommoditypriceenvironmenthasnegativelyaffectedtheentireoilandgas
industryandHornbeckisnotimmune.Thiscurrentsituationhascausedamajorreductionin
expensiveoffshoredrillingprojects,significantlydecreasingthedemandforalloffshore
vessels,letaloneHornbecksfleet.Asaresult,Hornbecksutilizationratehasdeclined.The
Companycombatsthisutilizationratedecreasebystackingvesselsandloweringthesupplyof
boatsinthemarket.However,Hornbeckdoesnothaveananswerforthesignificant
downwardpricingpressure.Althoughithasnotdroppedpricestothelevelsofitspeers,
Hornbeckhasreduceditsdayratestoaccommodateitscustomers.Thus,loweroilpriceshave
ledtoasmallerrevenuestreamforHornbeck.Wedonotpredictoilpricestoreboundin2016,
soourprojectionsdonotpredictanincreaseinHornbecksrevenue.
Strongcashholdingsandfavorableseniornotetermstohelpweatherthestorm
HornbeckOffshorehasahealthybalancesheet.Withover$300millionincashandcash
equivalents,theCompanyisinastrongfinancialpositiontosettleitsinterestpaymentsand
payanyextraordinaryexpenses.Hornbeckwillbeabletosurvivethisdownturnevenifitdoes
notearnaprofitinfuturequarters.AdvantageousdebtfinancingthatHornbeckreceivedin
2013helpsitscase.TheCompanyhasjustover$1billionofseniornotes,butnonearedue
until2019attheearliest.Additionally,theweightedaveragecostofdebtonthesenotesisa
mere4.48%.Ifdisasterstrikes,Hornbeckhasanuntapped$300millionrevolvingcreditfacility.
RelianceonshorttermcontractsmaysubjectHornbecktogreatervolatility
Hornbeckhasalwaystargetedshorttermcontractsinthespotmarket.WhiletheCompany
engagesinafewlongtermcontractstohelphedgeagainstoilprices,Hornbeckmakesits
moneythroughshorttermcontracts.Shortercontractsallowforhigherdayrates.Hornbeck
targetscustomersthatareinimmediateneedofanextrasupportorsupplyvessel.For
instance,theCompanythriveswhenoilrigsneedservicingafterahurricaneintheGulfof
Mexico.Additionally,Hornbeckbelievesitsboatsareyounger,safer,andmoretechnologically
capablethanitspeers;thus,Hornbecksfleetshoulddemandahigherdayrate.
HornbecksspotmarketstrategydoesnotallowtheCompanytohedgeagainstadecreasein
oilprices.Eveninthislowcommoditypriceenvironment,Hornbeckisstickingwithitsstrategy.
Asaresult,theCompanyhasstacked21vesselstodateandwillcontinuetostackvesselsto
maintainitshighdayrates.Asonetopexecutivesaid,Hornbeckwouldratherhaveaboatsitin
theharborthanbeactiveatalowerdayratethanwhattheCompanydemands.Insteadof
lockinginadayrateoveralongperiodoftime,Hornbeckwillcontinuetoexperiencedayrate
volatilityinthespotmarket.
3
November12,2015
Endofnewbuildprogramincreasesfuturefreecashflow
Hornbeckisnearingthecompletionofitsfifthnewbuildprogram.TheCompanyspent
approximately$1.1billionincapitalexpenditures(CAPEX)ontheprojectinordertokeepits
fleetmoretechnologicallyadvancedthanitscompetitorsboats.Theprogramwillbecomplete
overthenextyearandtheCompanyexpectsonly$95millionlefttobeincurred.Withmany
newvesselsinitsfleet,andableakoutlookfortheoffshoredrillingindustry,Hornbeckwillnot
spendmuchmoneyongrowthCAPEXoncetheprogramiscomplete.Recently,Hornbeckalso
completedthesaleofitsfourthvesseltotheU.S.Navy,adding$38milliontoitsbalancesheet
andreducingitsmaintenanceCAPEXspending.WhileHornbecksrevenuewillclearlysuffer
fromlowoilprices,itsfuturefreecashflowwillnotbehinderedbycapitalexpenditure
spending.
PoliticalandeconomicchangesinBrazilandMexicotoopennewopportunitiesintheregion
SignificantchangesintwoofHornbeckskeyforeignmarkets,MexicoandBrazil,couldaffect
theCompanysprofits.Pemex,theMexicanstateownedenergycompany,recentlylostits75
yearoldmonopolyoverMexicanoilafteravoteofMexicosCongressinDecember2013.Asa
result,privateE&PcompanieswillnowbeabletocompetewithPemexinthedeepwater
offshoreoilindustry.ThisdevelopmentwillamounttoanetpositiveforHornbeck.While
HornbeckmayhavetoexpendeffortsnegotiatingcontractswithPemexscompetitors,the
increasedcompetitionamongE&Pcompanieswilllikelydrivedayratesup,increasing
Hornbecksrevenues.
DevelopmentsinBrazilwillalsoinfluenceHornbecksrevenue.TheBraziliannationalizedoil
company,Petrobras,hasfacedscandalandcorruptioncharges.Petrobrashasinformed
Hornbeckitwillnotrenewitscontractsbecauseofa$10billionreductioninE&Pactivities.In
response,HornbeckwillsendtwoofitsvesselsfromBraziltotheU.S.GulfofMexicoandleave
twovesselsinBraziltoengageinoperationswhenthemarketrecovers.Hornbeckhasthe
opportunitytoengageinaspotstrategyifPetrobrassuddenlyneedsHornbecksvessels.
Intheshortterm,reductionsinBrazilianE&PactivitywillhurtHornbecksfutureoutlook
becauseHornbeckwillnotreceiveadditionalrevenuefromcontractswithPetrobras.In
addition,HornbeckremainsuncertainifPetrobraswillpaythefullamountspecifiedin
contractsduetotherecentscandal.However,Hornbecksdecisiontomovetwovesselsaway
fromBrazilwilldecreasetheCompanysexposuretotheBrazilianmarket,whichis
experiencingdeclininggrowthratesandacurrencycrisis.TheCompanysfuturecashflowswill
bemorepredictableasitmovesagreaterpercentageofitsactivitytomorepoliticallystable
regions.
November12,2015
VALUATION
Inordertoarriveatour12monthtargetprice,ourteamvaluedHornbeckextrinsicallybased
onitsperformancerelativetoitscompetitors.Thisvaluationgaveusa12monthtargetprice
of$15.00.Figure2showsamoredetailedbreakdownofhowwearrivedatthistargetprice.A
12monthtargetpriceof15.00wouldbeapproximatelya20%returnwithinthenext12
months.
RelativeMultipleMethod
Onemethodofvaluingacompanyisbycomparingittosimilarcompanies.Forexample,ifyou
weretotryandcomeupwithavalueforanappletree,youwouldlookatappletreesinthe
samegeographicareathatareroughlythesamesizeastheotherappletree.Ourteamused
thepricetoearnings(P/E),pricetobookvalue(P/BV),enterprisevaluetoearningsbefore
interestandtax(EV/EBIT),enterprisevaluetosales(EV/Sales),andpricetocashflowsper
share(P/CFPS)ratiostovalueHornbeck.TheseratioswerepulledfromCapitalIQ.
WhileitwouldhavebeenbeneficialtovalueHornbeckintrinsicallybyutilizingadiscounted
cashflow(DCF),itwasnotpractical.BecauseHornbeckrecentlyrefinanceditsdebtwhen
interestrateswerevirtuallyzero,itslongtermdebtyieldedabouta5.75%return.Applying
theappropriatetaxshieldtotheCompanysdebt,wearrivedatanaftertaxcostofdebtof
approximately3.60%.WhencombiningthatwithHornbeckscostofequity(11.08%),we
arrivedataweightedaveragecostofcapital(WACC)of6.01%.Whenprojectingoutourfree
cashflowsaswellasaterminalvalueanddiscountingthosevaluesbytheWACC,wearrived
atapricetargetof$65.18,whichisanoutlier.WethenchangedtheWACCtoamore
reasonable11.51%,arateofreturnthatwouldbeattheS&P500,andarrivedatatargetprice
of$7.33.Therefore,theDCFwasnotareliablemethodofvaluingHornbeck.
Figure2:HornbeckRelativeMultiplesValuation
HornbeckRelativeMultiplesValuation
$22.00
12Month
TargetPrice:
$15.00
$17.00
Current
Price:
$12.44
$12.00
$7.00
P/E
P/BV
EV/EBIT
EV/Sales
P/CFPS
Source:BloombergNovember12,2015
5
November12,2015
INDUSTRYANALYSIS
Analystsexpecttherevenueoftheentireoilfieldservicestobe$100.2billionbytheendof
2015,downfrom$126billionin2014.Meanwhile,thenumberofenterprisesintheindustry
decreasedfrom32,059in2014toapproximately30,592in2015.Marinetransportationisan
importantsegmentoftheoilfieldservicesindustry.Approximatelyonethirdofdomesticoil
comesfromdeepwateroffshorerigsandmarinetransportationcompaniesprovide
equipmentandservicingfortheserigs.
Rigcounts,rigutilizationrates,vesselutilizationrates,anddayratesareallimportantfactors
inanalyzingdemandformarinetransportation.Confidenceinhigheroilpricesencourages
exploration&production(E&P)companiestofindnewoffshoreoilfields.Asaresult,E&P
companieswillconstructnewrigsanddemandmarinetransportationservicesdependingon
oilprices.Expectationsoflowoilpricescanleadcompaniestohaltnewrigconstructionor
evenreducecurrentrigactivity.Therefore,thecurrentreductioninrigcountsindicatesthat
E&Pcompaniesexpectoilpricestoremainlowinthenearfuture.
Rigutilizationrates,whichrepresentthepercentageofactiverigsinadesignatedregion,
influencethedemandforoffshorevessels.Figure3illustratesthedeclineinutilizationrates
overthepastyearinthreekeyareasforoffshoredrilling:theGulfofMexico(GoM),Mexico,
andBrazil.
Figure3:OffshoreRigUtilization
100%
90%
89%
91%
86%
PercentUtilized
80%
70%
80%
72%
67%
60%
50%
86%
63%
52%
40%
30%
40%
36%
36%
Mar'15
Aug'15
Sep'15
20%
10%
0%
Sep'14
USGoM
Mexico
Brazil
Source:RigzoneSeptember22,2015
Decliningrigutilizationrateswilllikelyleadtoareductionindemandforoffshorevessels.
Therefore,marinetransportationcompaniesthatserviceoffshoreoilrigsshouldexpect
revenuestodecline.
6
November12,2015
Vesselutilizationratereferstothepercentageofacompanysvesselscurrentlyinuseoutof
thetotalfleet.However,themarketedvesselutilizationrateisabettermetricthanthe
generalutilizationratebecauseitonlylooksatactive,readilyavailablevessels.Highmarketed
vesselutilizationratesindicateahealthymarketforoffshoresupportvessels(OSVs).Thefall
inoilpriceshashurtdemandforOSVsandotheroffshorevessels,decreasingmarketedvessel
utilizationrates.
Marinetransportationcompaniesearnrevenuebychargingdayratesfortheuseofitsvessels.
Withintheoilfieldservicesindustry,dayratesvarybycompany,region,andvesselcapacity.In
theU.S.,averageindustrydayratesforOSVswithadeadweighttonnage(DWT)between3,000
and4,000are$23,750forAugust2015,adeclinefrom$31,500inAugust2014.Theaverage
industrydayratesforAugust2014arelikelyhigherthantheyearlyaveragebecauseoilprices
begantodroponlyafterAugust2014.Loweroilpricesdecreasedemandforoffshoredrilling,
creatingdownwardpressureonindustrywidedayrates.Anoversupplyofvesselsinrelationto
demandcouldalsoforcedayratestodecline.
Althoughmarinetransportationcompaniespriceitsservicesbasedondayrates,firmstypically
engageinlongtermcontractswithE&Pcustomerstoservicerigs.Therefore,revenuesfor
marinetransportationcompanieslikelycorrespondtorevenuesofE&Pcompanies.Revenues
ofoffshoreoilrigconstructioncompaniesaremildlycorrelatedwithoilprices,asshownin
Figure4:
Figure4:PercentChangesinOilPricesandRevenuesofRigCompanies
80%
60%
40%
20%
0%
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
20%
40%
60%
Revenue(%)
Worldpriceofcrudeoil(%)
Source:IBISworldIndustryReports
Whileoilpricesandrevenuesofoffshorerigconstructioncompaniesgenerallymoveinthe
samedirection,oilpricesaremorevolatilethanrevenues.Offshoreoilrigsrequirelongterm
investments.Whilelongtermdeclinesinoilpricesmayreducethedemandforoffshorerigs,
revenuesforoffshorerigconstructioncompanieswillchangelessthanoilpriceswill.
Therefore,weexpectrevenuesforthemarinetransportationcompaniesthatservicethe
offshoreoilindustrytomoveinthesamedirectionasoilprices,butwithlessvolatility.
7
November12,2015
GeographicAreas
Marinetransportationcompaniesconductoperationsinregionswithoffshoreoilrigs.Figure5
showsthenumberofrigsinsomeofthelargestoffshoreoilregions,whicharetheregions
withthehighestdemandforOSVs:
Figure5:Numberofoffshorerigsworldwideasof2015,byregion
Brazil
104
Mexico
113
PersianGulf
145
FarEastAsia
163
SoutheastAsia
173
NorthSea
184
GulfofMexico(US)
213
0
50
100
Source:Statista
150
200
250
Brazil
PoliticalstabilityplaysanimportantroleinHornbecksoperations.Forexample,Hornbeck
currentlyhasfourvesselsworkingforthenationalizedBrazilianoilcompanyPetrobras,but
PetrobrashasalreadyinformedHornbeckthatitwillnotrenewitscontracts.Thefour
contractsallexpireinthesecondhalfof2015.Petrobrashaschosentouseonlydomestic
vesselsinitsoffshoreoilindustry.Furthermore,thecompanyisfacingacorruptionscandal
involvingmoneylaunderingandotherillegalactivities.Asaresult,Petrobrashasalready
announceda$10billionreductioninexplorationandproduction(E&P)activities,and
additionalreductionscouldfurtherdepressdemandforOSVs.TheBrazilianeconomyisalso
performingpoorly.Brazilscurrency,theReal,felltoalltimelowsagainstthedollaron
September24,andBrazilscentralbankpredictsa2.7%contractionfor2015.Duetothe
decliningRealandrelativelystrongdollar,BraziliancompaniessuchasPetrobraswillfindit
moreexpensivetodobusinessinternationally,reducingdemandforU.S.basedmarine
transportationcompanies.
Mexico
ThenationalizedMexicanoilcompanyPEMEXhascancelledcontractsduetoareductioninits
budget.PEMEXsmonopolyoverdrillingactivitiesinMexicoendedin2013.Companiesthat
haveexistingcontractswithPEMEXmayscrambletosecureadditionalcontractswithnew
drillingcompaniesinMexico,butincreasedcompetitionforvesselscouldleadtoincreased
dayrates.
8
November12,2015
Mediterranean
Eni,anItalianenergycompany,recentlydiscoveredoneoftheworldslargestnaturalgas
fields,Zohr,justoffthecoastofEgypt.AccordingtoEni,Zohrmayholdupto5.5billion
barrelsofoil.Asaresultofthisdiscovery,theMediterraneanSeacouldbeanewmarketfor
Hornbeck.
Customers
Customersofthemarinetransportationindustryincludeintegratedoilcompanies,oilfield
servicecompanies,nationaloilcompanies,theU.S.government,andindependentexploration
andproductioncompanies.Customersvaryyeartoyearbasedonseveralfactorsincludingthe
totallevelofexplorationandproduction,theavailabilityandsuitabilityofeachcustomers
projects,andmanymoreexternalfactors.Customerloyaltyinthisindustryislowbecause
drillingcompaniessignindividualcontractswithserviceprovidersandthereislittletono
switchingcost.
RegulatoryEnvironment
TheJonesActprohibitsnonU.S.flaggedvesselsfromtradinginU.S.CoastalWaters.U.S.
flaggedvesselsarethosebuiltinandownedbycitizensoftheU.S.TheJonesActlimitsforeign
competitorsfromusingOSVstoservicerigsbecauseforeignOSVscannottransport
equipmentorpersonnelfromtheU.S.shoretorigs.However,theJonesActdoesnotrestrict
foreignmultipurposesupportvessels(MPSVs)solongasvesselsdonotengageinU.S.coastal
trade.Therefore,U.S.marinetransportationcompaniesfaceforeigncompetitioninMPSV
operations.
TheCleanWaterActservesasaguidelineforactivityinU.S.waters.Thelawprohibitsthe
dischargeofpollutantsintonavigablewaters.OSVscarrydieselfuelandchemicals,andmust
haveresponseplansincaseofanoilspillorchemicaldischarge.
TheOilPollutionActof1990(OPA90)includesvesselsservicingarigasaresponsiblepartyin
thecaseofanoilspill.Thelimitsofsuchaliabilityarethegreaterof$854,000or$1,000per
grosston.Therefore,offshorevesselcompaniesneedtopurchaseinsuranceorkeepenough
cashonhandtocoverthesepotentialliabilities.
Incertaincases,theU.S.governmentmayissueamoratoriumonalldeepwateroffshore
drilling,asdemonstratedbythesixmonthmoratoriumfollowingtheDeepwaterHorizonoil
spill.Amoratoriumcangreatlyaffecttheoffshoreenergydrillingindustrybyshuttingdownall
operations,causingareductioninbothE&Pandmarinetransportation.
TheEnvironmentalProtectionAgencys(EPA)decisiontoregulatecarbonundertheCleanAir
Actcouldaffectfuturedemandforoil.TheObamaadministrationrecentlysubmittedan
initiativetotheUnitedNationstocutcurrentgreenhousegasemissionsto2628%below
2005levels.Althoughnobodycanaccuratelypredictthisplansconsequences,theinitiative
couldmakeoilandgasmoreexpensiveorlimitoilproduction,decreasingdemandforoil.A
reductionindemandcoulddecreasethelevelofoffshoredrilling,whichwouldhurtthe
marinetransportationindustry.
9
November12,2015
Competitors
Competitorsinthemarinetransportationindustryaremostlylarge,establishedcompanies.
Thecapitalexpendituresrequiredforservicingtheoffshoreoilindustrypreventtheentryof
smallcompetitors.Inaddition,mostofthecustomersintheindustryarelarge,integrated
energycompanieswhoprefertodobusinesswithcompanieswithestablishedsafetyrecords.
TheCompanysthreemajorcompetitorsareTidewater,SEACOR,andEdisonChouest.
TidewaterhasthelargestfleetofOSVsintheoilfieldservicesindustry,butover90%ofits
operationsareinternational.SEACORHoldingsInc.operatesfourmainbusinesses:offshore
marineservices,inlandriverservices,andshippingservice.EdisonChouestOffshoreisthetop
operatorofNewGenerationOSVsworldwideandthelargestoperatorofJonesActHiSpec
OSVsintheGulfofMexico.
FutureOutlook
Revenuesintheoffshoredrillingindustryhaveastrongpositivecorrelationwithoilprices.Oil
prices,therefore,dictatethedrillingratesE&Pcompaniesarewillingtopay.Withoilselling
forjustabouthalfthepriceitwassellingforattheendofthesecondquarterof2014,E&P
companiesnowrequirelowerdrillingrates.Inturn,oilfieldserviceproviders,suchas
Hornbeck,willlikelyhavetocutitsdayrates.
Thedeclineinoilpricesaffectstheoffshoreoilfieldservices(OFS)industrylessthanitaffects
onshoreE&Prelatedcompanies,especiallyintheshortterm.Inthelongterm,offshoreOFS
companiesshouldexpecttoseealaggedeffectfromtheoilpricedownturnbecauseofdelays
infinalinvestmentdecisionsonnewprojects.AccordingtoapressreleasebyDouglas
Westwood,offshoreOFScapitalexpenditurewilldeclineafter2016beforeincreasingagainin
2019.Overthenextfiveyears,totalOFSexpenditureisexpectedtogrowatacompounded
annualgrowthrate(CAGR)of7%asopposedtothe12%CAGRexperiencedfrom20102014.
ABOUTHORNBECK
HornbeckOffshoreServicesInc.providesmarinetransportation,subseainstallationand
accommodationsupportservicestoexplorationandproduction,oilfieldservice,offshore
constructionandU.S.militarycustomers.TheCompanysfleetof60newgenerationoffshore
supportvessels(OSVs)andsixmultipurposesupportvessels(MPSVs)isamongtheyoungestin
theindustrywithanaveragevesselageofsevenyearsasopposedtotheindustrystenyear
average.Alongwithitsyoung,primarilyU.S.flaggedfleet,Hornbecksfinancialstrength,
operatingcapabilities,andreputationforqualityandsafetyenablestheCompanyto
effectivelycontendagainstitscompetitorsinthesameoperatingareas.
CurrentChairmanandChiefExecutiveOfficer(CEO)ToddM.HornbeckfoundedHornbeck
OffshoreServicesin1997andtooktheCompanypublicin2004.Originallyfoundedbyhis
fatherLarryHornbeckin1980,ToddM.HornbeckreestablishedHornbeckOffshoreServices
oneyearaftertheoriginalcompanymergedwithTidewater.HeadquarteredinCovington,
Louisiana,HornbeckownsandoperatesOSVsandMPSVsprimarilyintheU.S.GulfofMexico
(GoM),Mexico,andBrazil.
10
November12,2015
Customers
Hornbecktriestomaintainadiversifiedrevenuestream,asonlyoneclientaccountedformore
than10%ofitsrevenuein2014.However,thepercentageofrevenuesattributabletoeach
customervaryyeartoyearbasedonthetotallevelofexplorationandproduction,the
availabilityandsuitabilityofeachcustomersproject,andmanymoreexternalfactors.
AsofAugust11,2015Hornbeckscustomersincludeintegratedoilcompanies,oilfieldservice
companies,nationaloilcompanies,theU.S.government,andindependentexplorationand
productioncompanies,asshowninFigure6.
TheCompanychartersitsvesselsbasedoneitherlongtermorspotmarketcontracts.The
companypricesthosecontractsbasedonnegotiationofcompetitivebids.Hornbeckprices
chartersonadayratebasis,meaningtheCompanychargesforeachcontracteddaythatit
makesvesselsavailableforcustomeruse.
Figure6:Hornbeck2015RevenuebyCustomerType
IntegratedOil
Companies
52%
Independent
E&P
Companies
4%
NationalOil
Companies
12%
OilfieldService
Companies
22%
U.S.Government
10%
Source:HornbeckInvestorPresentationAugust2015
Productsandservices
Hornbeckownsandoperatesafleetofvesselsusedtoservicetheoffshoreoilandgas
industry.AsoftheendofJune2015,theCompanyoperates48activevessels,29domesticand
19foreign.Specifically,42oftheseshipsarenewgenerationOSVsandsixarelarger,more
specializedMPSVs.Allofthesevesselssupportdeepwell,deepwater,andultradeepwater
activities.
11
November12,2015
Figure7:HornbeckOSV
PhotoCourtesyofoffshoreenergytoday.com
Strategy
InJuly2013,Hornbeckannouncedthedivestitureofitsnoncoredownstreamsegmentto
focusonexpandingitsupstreambusiness.Hornbeckreceived$230millionfromthesaleofall
nineofitsoceangoingtugsaswellasitsninedoublehulledtankbarges.Becauseof8090%
utilizationratesandhighdemandinthebargemarket,Hornbecksolditsassetsataprice
abovemarketvalue.TheCompanyutilizedproceedsfromthesaletosupporttheconstruction
ofnewOSVs.
Hornbeckfocusesonlongtermgrowthandinvestmentorientedgrowthstrategies.The
Companywillcontinuetoexpanditsfleetthroughconstructionofnewvessels,retrofittingof
certainvessels,andstrategicacquisitions.TheCompanycommitstomaintaininga
technologicallyadvancedfleetbyutilizingexistingtechnologyanddevelopingnewtechnology
onallnewgenerationOSVsandMSPVs.Astheoffshoreexplorationandproductiontrend
continuestomovetowarddeeperwatersanddeeperwelldepths,clientsvesselneedsare
becomingmoreandmorecomplex.Tomeetdemand,HornbecksfifthOSVnewbuildprogram
focusesonconstructinghighspecvesselscapableofservicingthedeepandultradeepwater
drillingrigs.Withoilpricesnearrecordlows,upstreamsegmentcompaniesarestruggling.
HornbeckbelievesthatinexpensiveacquisitionopportunitieswillariseandtheCompanyhas
theexperienceandexpertisetostrategicallyacquireitscompetitors.
Toensureconsistentcashflows,Hornbeckpursuesabalanceoflongtermandshortterm
charters.LongtermchartersprovidetheCompanywithpredictablecashflows,whileshort
termchartersallowHornbecktotakeadvantageofincreasingdayratesduringfavorable
marketcycles.Comparedtoitscompetitors,Hornbeckprefersshorttermspotcontractsthat
receivehighdayrates.Thisstrategythreatenstheutilizationrateofthevessels,butHornbeck
strategicallystacksitsboatsinordertomaintainaconsistentutilizationrateamongactive
vessels.
Hornbeckfocusesitsservicesonthreecoregeographicmarkets,theGulfofMexico(GoM),
Brazil,andMexico.Currently,asshowninFigure8,themajorityofHornbecksvesselsservice
theGoM.However,theCompanyisexpandingitspresenceinBrazilandMexicototake
advantageofthetwomarketsexpectedlongtermgrowth.HornbeckislicensedinMexicoasa
navieraandinBrazilasanavigationcompany.
12
November12,2015
TheselicensesallowHornbecktobiddirectlytoPEMEXandPetrobas,MexicosandBrazils
nationaloilcompanies,respectively,tostreamlinefutureoperationsandtoreducefuture
costs.TheproximityofitsthreecoregeographicoperatingareasallowHornbecktobetter
manageitscontractstoenhancedayratesandvesselutilizationrates.
Figure8:HornbeckCoreGeographicOperatingMarkets
Competition
Marinetransportationfortheoffshoreoilandgasindustryishighlycompetitive.Each
companycompetesbasedonthetechnologicalcapability,availability,ageofvessels,
experienceofitscrewmembers,reputationforsafety,andprice.Hornbeckhasanadvantagein
itsprimarymarket,theGulfOfMexico,becausetheJonesActstipulatesthatonlyU.S.flagged
OSVsmayoperateinU.S.coastalwaters.HornbeckhasthesecondlargestJonesActqualified
OSVfleetintheU.S.(seeFigure9).AlthoughtheJonesActdoesnotprotecttheMPSV,
HornbeckoperatesthelargestMPSVfleetintheregion.Internationally,theCompanyisthe
thirdlargestoperatorofnewgenerationOSVsworldwide,butonlyowns5%ofthemarket
share.Asoffshoreexplorationandproductionbecomesmorecomplex,customerstendto
movetowardsthelargestoperators.ThesizeandcapabilityofitsfleetwillenableHornbeckto
gainmarketshare.
13
November12,2015
Figure9:TopOperatorsofOSVsintheGulfofMexico
GulfMark
3%
Other
3%
OttoCandies
9%
HarveyGulf
9%
HornbeckOffshore
37%
Tidewater
6%
EdisonChouest
33%
LatestDevelopments
OilpricesplungedinJuly2015andnearlyhit$40perbarrelthissummer.Theselowpricesdo
notbodewellforHornbeckandthemarinetransportationindustry.AccordingtoIHSCera,
71%ofalloffshorerigsintheGulfofMexicowereinusetheweekofSeptember4,2015,down
7%fromlastmonthand11%fromlastyear.Thisisasignthatoffshoreproducershavebeen
consistentlyslashingproducingunitsoverthepastyear,andevenmoresorecentlydueto
historicallylowoilpricesandglobalmarketvolatility.
InlateAugust,theItalianenergycompanyEnidiscoveredasupergiantoilfieldinthe
EgyptianwatersoftheMediterraneanSea.NotonlyisEniHornbeckscustomer,butthe
CompanyalsohaspriorexperienceworkingintheMediterraneanSea.Withonlytwovessels
currentlysituatedinEurope,Hornbeckcouldlooktoexpanditsgeographicalreachand
participateinthisnewproject.
HornbecksplanstoexpandoperationsinBrazilandMexicoarelargelyreliantonthe
performanceofthecountriesstateownedoilcompanies,PetrobrasandPEMEX,respectively.
In2015,nationaloilcompaniesareexpectedtoaccountfor12%ofHornbecksupstream
revenueandPetrobrasandPEMEXaretwoofHornbeckslargeststateruncustomers.The
weakeningBrazilianReal,fallingoilpricesandrisingdebtcostsforcedPetrobrastocutitsfive
yearspendingplanby40percentinJune2015,andnowthecompanyexpectstocutbackeven
further.WhileHornbeckmayloseBraziliancontractsintheshortterm,inthefuture,the
CompanywilllikelybenefitfromPetrobrasdecliningregionaldominationinthelongterm.
PetrobrasdeclinewillenablelargeintegratedoilandgascompaniesoperatingintheGulfof
MexicotogainmarketshareinBrazil.Thus,Hornbeckshouldbeabletogainmorecontracts
fromthenewplayersinBrazilthantheCompanygainedfromPetrobras.
14
November12,2015
HornbeckskeycustomerinMexico,PEMEX,recentlylostitsoilandgasproductionmonopoly
inthecountry.Afteryearsofdeclineindomesticoilandgasproduction,theMexican
governmentbeganliftingregulationsandpermittingforeigncompaniestostartdeveloping
offshoreprojectsinMexico.WhileHornbeckmaynotseeasmanycontractscomingfrom
PEMEX,theMexicangovernmentiscommittedtoauctioningitsoffshoreblocksto
internationalplayers.Therefore,Mexicosdeepwaterwellswillstillbeagrowingoperating
regionforHornbeck.
PEERANALYSIS
HornbeckOffshoreServicesInc.operatesinthegloballycompetitiveoffshoreoilfieldservices
sector.Nearly200companiescompeteintheoffshoreoilfieldservicessector,although
Hornbeckdoesnotcompetedirectlywiththeentiremarket.Peercompaniesrangeinsize,
capabilities,andoperationalareas.Inthemarinetransportationfragmentoftheoffshore
oilfieldservicessector,Hornbecksyounghighendfleetdifferentiatesthefirmfromitspeers.
Table2:PeerFinancialMetrics
Company(dataas
of10/01/2015)
MarketCap
(USDbn)
P/E
P/BV
EV/EBITDA
Debt/Equity
Dividend
Yield
ROE
HornbeckOffshore
0.48
6.12
0.33
5.61
75%
N/A
7.25
Tidewater
0.62
5.99
0.25
8.99
63%
8%
(4.80)
SEACORHoldings
1.05
41.64
0.77
8.88
63%
N/A
3.42
GulfmarkOffshore
0.15
14.68
0.16
11.16
60%
8%
1.78
Source:BloombergOctober1,2015
Table2displayskeyfinancialmetricsandratiosforHornbeckandthreeofitsmostsimilar
publiclytradedpeers.Ofthefourcompanies,Hornbecknoticeablyhasthehighestdebt/equity
ratio,atapproximately75%,butthisislargelyduetotheCompanysbuildingofhighly
specializednewgenerationvessels.At$480million,Hornbeckhasthesecondsmallestmarket
capitalizationofitspeergroup.WhiletheCompanysreturnonequityisthehighestofitspeer
group,itspricetoearnings(P/E)ratioisthesecondlowest.Hornbeckdoesnotpayadividend.
Tidewater(NYSE/TDW)
Tidewater,apublicmarinetransportationcompanyheadquarteredinNewOrleans,hasthe
largestfleetofOSVsintheoilfieldservicesindustry.Thecompanysrevenue,$1.4billionin
2014,isthehighestamongHornbeckscompetitors.AlthoughTidewateristheoldestcompany
inthemarinetransportationindustryintheGulfofMexico,over90%ofitsoperationsare
international,and70%ofthecompanysrevenuecomefromoutsidetheWesternHemisphere.
Furthermore,customersintheoilfieldservicesindustryconsiderthecompanysOSVsof
averagequality.
Likemanycompaniesintheoilfieldservicesindustry,Tidewaterisperformingpoorlythisyear.
Netincomeforthesecondquarterhasdecreased135%fromthesamequarterlastyear,from
$43.7millionto$15.0million.Thecompanysstockpricehasalsodropped62.4%sincelast
year.
15
November12,2015
SEACORHoldingsInc.(NYSE/CKH)
SEACORHoldingsInc.operatesfourmainbusinesssegments:offshoremarineservices,inland
riverservices,shippingservices,andalcoholmanufacturing.Roughly70%ofSEACORs
revenuesfrom2014werefromoperationsintheU.S.,mainlytheGulfofMexico.Theoffshore
marineservicesectoraccountedfor40%ofSEACORsrevenuesin2014.Thecompanyis
headquarteredinFortLauderdale,Florida.
Becauseofthecurrentstateoftheoilindustry,SEACORhasstackedanadditionalthreevessels
intheGulfofMexicosinceMarch31,2015.Thecompanyhasnowcoldstackedtenvessels.
ComparedtoHornbeck,SEACORsfleetislargerandmorediversified,butalsoolderandless
technologicallyadvanced.Therefore,HornbeckdoesnotconsiderSEACORamajorcompetitor
forthetypesofcontractstheCompanyattemptstosecure.
GulfmarkOffshore(NYSE/GLF)
GulfmarkisapublicmarinetransportationcompanyheadquarteredinHouston,Texas.
Foundedin1990,thecompanyhasbuiltanindustryreputationforsafe,consistentvessels.The
companysrevenuewas$495.8millionin2014,butanalystsexpectrevenuetodeclineto$295
millionin2015,adropofroughly40%.WhilethecompanysmainoperationsareintheNorth
SeaandoffshoreSoutheastAsiaregions,GulfmarkalsooperatesintheGulfofMexico,Mexico,
Trinidad,andBrazil.UnlikeHornbeck,only40%ofthecompanysrevenueisfromtheWestern
Hemisphere;45%fromtheNorthSea,andtheremaining15%fromSoutheastAsia.Asof
December2014,thecompanyhas1,800employees.
GulfmarkOffshoreisthelargestoperatorofplatformsupplyvesselsintheNorthSearegion.Of
thecompanys71activevessels,60%arelessthantenyearsold,makingitsfleetolderthan
Hornbecksfleet.Gulfmarktypicallypostsstrongerrevenuesinthesummermonths.
ConditionsintheNorthSearegion,thecompanyslargestregionofoperations,typicallyfavor
thesummermonths.Gulfmarkslargenumberofinternationaloperationsexposethecompany
tocurrencyriskmorethanHornbeck,whoseprimaryoperationsaredomestic.Inaddition,
Gulfmarksvesselutilizationrateshavedecreasedacrossmultipleregions,followingindustry
trends.
EdisonChouestOffshore(PrivateCompany)
EdisonChouestOffshore(ECO)isaprivatemarinetransportationcompanybasedinGalliano,
Louisiana.Since1960,thecompanyhasoffereddiversemarinetransportationsolutionswitha
focusonstayingattheforefrontoftechnologicaladvances.ECOoffersover200vesselsto
servedeepwatercustomersbothintheU.S.andaroundtheworld.Whilethecompanysmain
areaofoperationsistheGulfofMexico,ECOalsosendsvesselstoSouthAmerica,Africa,and
otherregionsoutsidetheU.S.
InDecember2014,ECOpurchasedBollingerShipyards,avesselrepairfirmwithtenshipyards
inLouisianaandTexas.BollingerprovidesrepairservicesandconstructsOSVs,rigs,barges,and
inlandwaterwaysboats.ThisacquisitionaddstoECOsexistingshipyardsandputsthe
companyinastrongpositiontobuild,repair,andstackvessels.
16
November12,2015
Furthermore,BollingersuppliescuttervesselstotheU.S.CoastGuard,andECOwillnowtake
overthesecontracts.EdisonChouestisHornbeckslargestdirectcompetitorasthecompanyis
thenumberoneoperatorofnewgenerationOSVsworldwide,with11%ofthemarketshare
versusHornbecks6%marketshare.With42%ofthemarket,Chouestisthenumberone
operatorofJonesActHiSpecOSVsintheGoM.
MANAGEMENTPERFORMANCEANDBACKGROUND
HornbeckOffshoreServiceInc.sBoardofDirectorsiscomprisedofninemembers,twoof
whomareinsiders:ToddM.HornbeckandLarryD.Hornbeck.Therearefourmembersonthe
CompensationCommittee:KevinO.Meyers,JohnT.Rynd,NicholasL.Swyka,andBernieW.
Stewart,thechairpersonofthecommittee.AsmembersoftheCompensationCommittee,
theyaretaskedwithdeterminingthepropercompensationforHornbeckskeyexecutives
basedonthecompanysperformancerelativetocompaniesofsimilarindustryandsize.The
CommitteeusestheCompanysEBITDAasaprimaryfinancialmetrictodetermineexecutive
compensationbasedonwhethercorporategoalswereachieved.TheCommitteealsolooksat
theCompanysreturnoninvestedcapital(ROIC)relativetoitspeers.ROICshowshow
efficientlyacompanycanallocateitscapitaltogenerateaprofit.
Table3:ReturnonInvestedCapital(ROIC)
Company
2011
2012
2013
2014
2015
HornbeckOffshore
4.48%
2.05%
3.33%
4.15%
3.81%
Tidewater
3.40%
2.74%
4.70%
4.18%
(1.05%)
SEACORHoldings
8.38%
2.28%
0.82%
2.42%
4.49%
GulfmarkOffshore
(1.65%)
5.55%
3.24%
6.04%
5.78%
PeerAverage
3.66%
3.16%
3.02%
4.20%
3.26%
ExecutiveCompensation
Hornbeckcompensatesitsexecutivesinthefollowingways:
BaseSalarypaymentfordaytodayservicesreviewedbythecompensationcommittee
Cashincentivecompensation/cashbonusespaymentbasedontargetsforadjusted
EBITDA,operatingmargin,totalrecordableincidentrate,andthediscretionofthe
compensationcommittee.Achievingathresholdmetricgrantsanexecutive50%of
basesalarymultipliedbyapercentageweight,100%forreachingatargetmetric,and
200%forreachingamaximummetric
Equityincentivecompensationawardsofrestrictedstocktoexecutives,witharatioof
60%40%timebasedtoperformancebased
Benefitsandcertainperquisitesincludehealthinsurance,401(k)plans,company
vehicles,anddeferredcompensationplans
17
November12,2015
Overthepastfiveyears,anaverageof59%ofexecutivecompensationcamefromstock
awards,whileonly17%originatedfromsalaries.Therefore,managementhasavested
interestinmaintainingthefiscalhealthofthecompany.SeeFigure10forthefiveyear
breakdownofexecutivecompensation.
Figure10:HornbeckExecutiveCompensation
$16
$14
Compensation($millions)
$12
$10
$8
$6
$4
$2
$
2010
SALARY
BONUS
2011
2012
STOCKAWARDS
OPTIONAWARDS
2013
2014
NONEQUITYINCENTIVE
HornbeckscompensationcommitteeconsistsofnonemployeeDirectorswhocreateand
overseetheCompanyscompensationandemployeebenefitplans.In2014,thecommittee
alteredthemethodsfordeterminingoperatingmarginsandsafetycomponents.The
committeemadechangestoincentivizemanagementtokeepoperatingmarginshighrelative
totheCompanyspeers,andalsochangedannualsafetybenchmarkstoreflectindustry
standards.Alsoin2014,thecommitteemodifiedtheratiooftimebasedtoperformance
basedstockawardsfrom70%30%to60%40%.Thischangeincreasestheincentivefor
managementtotakeactionstoincreaseHornbecksstockpricewhilealsoincentivizing
managementtostaywiththeCompany.
18
November12,2015
ToddM.Hornbeck
CEO,President,Chairman,Cofounder(47)
ToddM.HornbeckfoundedHornbeckOffshorein1997.HeisthesonofLarryHornbeck,who
foundedtheoriginalHornbeckOffshoreServices,Inc.in1981.Toddworkedforhisfathers
companyinrolessuchasbusinessstrategyanddevelopmentuntilTidewatermergedwith
Hornbeckin1996.HethenworkedforTidewaterasMarketingDirectorGulfofMexico.While
atTidewater,Todddevelopedabusinessplanforamarinetransportationcompanyfocused
onservicingthedeepwateroffshoreoilindustry,butTidewatersChiefExecutiveOfficer(CEO)
didnotwishtotakethecompanyinToddsproposeddirection.Mr.HornbeckleftTidewater
in1997andbecametheCofounder,President,andChiefOperatingOfficer(COO)ofthenew
HornbeckOffshoreServices.InFebruary2002,ToddleftthepositionofCOOandbecamethe
companysCEO,andin2005,theBoardofDirectorsappointedhimChairman.
CarlGAnnessa
ExecutiveVicePresident,COO(59)
CarlG.AnnessabeganhiscareeratHornbeckinSeptember1997,whenheservedas
HornbecksVicePresidentofOperationsuntilFebruary2002.InFebruary,Mr.Annessawas
appointedVicePresidentandChiefOperatingOfficer.InFebruary2005,Mr.Annessawas
appointedExecutiveVicePresident.Today,heoverseesfleetoperationsandthedesignand
implementationofvesselconstructionprograms.BeforeMr.AnnessajoinedtheHornbeck
teamin1997,heworkedforTidewaterastheManagerofFleetsintheArabianGulf,
Caribbean,andWestAfricanmarkets,aswellasthearchitectofseveralvessels.Mr.Annessa
studiedmarineengineeringandnavalarchitectureattheUniversityofMichiganand
graduatedin1979.
JamesO.HarpJr.
ExecutiveVicePresident,CFO,InvestorRelations(55)
JamesHarpjoinedHornbeckin2001astheCompanysVicePresident(VP)andChiefFinancial
Officer(CFO).HebecameExecutiveVicePresidentofHornbeckin2005.Priortojoiningfor
Hornbeck,Mr.HarpworkedasVPintheEnergyGroupofRBCDominionSecurities
Corporation,andfrom19971999,servedasVPintheEnergyGroupofJefferies.Mr.Harpis
alsoaninactiveC.P.A.whoworkedinthetaxsectionofArthurAndersen.Heconcentratedon
clientsintheoilservicesandmarineindustriesinhisaccountingandinvestmentbanking
career.HealsoservedasHornbecksinvestmentbankerconcerningprivateplacementof
commonstockinNovember2000.
SamuelA.Giberga
ExecutiveVP,CCO,GeneralCounsel
SamuelA.GibergajoinedHornbeckinJanuary2004asGeneralCounsel.Soonafter,hewas
appointedSeniorVicePresidentinFebruary2005.In2011,Mr.GibergawaspromotedChief
ComplianceOfficerandExecutiveVicePresident.PriortojoiningHornbeck,Mr.Giberga
practicedlawfor14years.HewasalsoacofounderofMaritimeClaimsAmericasL.L.C.,which
servesasanetworkofofficesformarineprotectionandindemnityassociationsinLatin
America.
19
November12,2015
JohnS.CookJr.
ExecutiveVP,CIO,CCO(46)
JohnS.CookbeganhiscareeratHornbeckinMay2002,followingatenyearconsultingcareer
atArthurAndersenLLP.Beforehisdeparture,Mr.CookservedasSeniorManagerforArthur
AndersenLLP.Asaconsultant,Cookassistedmarineandenergyservicecompanies
withvariousbusinessprocessesandinformationtechnologyinitiatives.CookjoinedHornbeck
asChiefInformationOfficer.In2006,hewaspromotedtoVicePresident,movingupto
ExecutiveVicePresidentandChiefCommercialOfficerinFebruary2013.
SHAREHOLDERANALYSIS
AsofSeptember30,2015,HornbeckOffshoreServicesInc.had35.8millionshares
outstanding,87.7percentofwhichwerefreefloat.TheCompanysBoardofDirectorslast
authorizedarepurchaseofcommonstocksharesinOctober2014,worth$150million.
InstitutionalInvestors
FourteenHornbeckinsidersholdatotalof12.4%ofallsharesasofOctober2,2015.Whilethe
numberofinsidersdecreasedthisyearfrom15lastyear,thepercentageofsharesheldby
insidersincreasedthisyearby1.0%.Thetopthreetypesofshareholdersareinvestment
advisors,hedgefundmanagers,andindividuals.Investmentadvisorshold58.8%ofshares
outstandingdownfrom62.7%lastyear.
Table4showsthetopteninstitutionalandstrategicinvestorswhoown72.7%ofHornbecks
outstandingcommonshares.Ofthetopteninstitutionalinvestors,nineholdpositionsgreater
than5%;however,noneofthesetopteninstitutionalinvestorshaveactedasactivist
investors.Allofthecurrenttoptenfundspursueeithergrowthorgrowthatareasonable
price(GARP)investmentstrategies.Therefore,Hornbeck,asanondividendpayinggrowth
stock,accuratelyfitseachfundsstrategy.ThelargestactivistinvestorisRagingCapital
Management,ownerof4.3%oftotalsharesoutstanding.WhileRagingCapitalManagement
haslaunched14activistcampaignssinceitsinception,thefirmhasneverlaunchedanactivist
campaigninvolvingHornbeck.
SinceSeptember30,2014,threeinvestorshaveexitedthetoptenwhileFidelityInvestments,
AnchorBoltCapital,andRagingCapitalManagementhaveenteredamongthetopten
institutionalinvestors.Sharesheldbythetopteninvestorshasincreasedby15.5%overthe
lastyear.Whileownershiphasincreasedamongthetopteninstitutionalinvestors,the
numberofnewbuyershasdecreasedby19.6%andthenumberofselloffshasdecreasedby
31.3%overthelastyear.Webelievethischangeisduetothepricecollapseoverthelastyear
combinedwiththecurrentmarketuncertaintyregardingtheoilandgasindustry.Similarly,
lessinvestorsaresellingtheirsharessinceHornbecksstockpriceisnearits52weeklow.Less
investorsarebuyingsharesbecausetheyarestillnotconvincedthatglobaloilsupplywill
declineandglobaldemandwillgrowinthenearfuture.
20
November12,2015
Table4:TopTenInstitutionalandStrategicShareholders
%
Ownership
Position
(000)
%
Change
Report
Date
Investortype
FineCapitalPartners,L.P.
9.79
3,507,736
(1.39)
6/30/2015
HedgeFund
FidelityInvestments
8.95
3,208,100
New
6/30/2015 InvestmentFund
DimensionalFund
AdvisorsLP
8.47
3,034,718
1.05
BHRCapitalLLC
8.26
2,959,000
(1.0)
6/30/2015
BlackRock,Inc.(NYSE:BLK)
8.03
2,876,362
(7.12)
TheVanguardGroup,Inc.
6.47
2,318,880
0.63
AnchorBoltCapital,LP
6.42
2,301,069
102.81 9/11/2015
ColumbiaWangerAsset
Management,LLC
6.22
2,229,868
(13.91) 6/30/2015 InvestmentFund
HuntWilliamHerbert
TrustEstate
5.74
2,058,390
RagingCapital
Management,LLC
4.3
1,540,973
72.66
26,035,096
InstitutionalInvestor
Total
7/1/2015
287.08 6/30/2015
HedgeFund
HedgeFund
InvestmentFund
HedgeFund
Source:CapitalIQOctober4,2015
InsiderInvestors
Table5showsthetopfiveinsiderinvestors,allofwhomaremanagement.Together,they
hold11.0%whileall14insidershold12.6%ofsharesoutstanding.Thetotalsharesheldby
insidersincreasedby9.4%sincetheendofthirdquarter2014wheninsidersheld11.5%
percentofsharesoutstanding.Allbutoneoftheseinsidershaveincreasedtheirshare
positionssincelastyear,suggestingthatthesefiveshareholdersareconfidentthatthestock
pricewillrebound.
21
November12,2015
Table5:TopFiveInsiders/Shareholders
Insider/Stakeholder
PercentOwnership
Position
PercentChange
ReportDate
Hunt,BruceW.
5.98
2,142,663
0.08%
10/1/2015
Hornbeck,ToddM.
2.71
970,430
0.41%
3/24/2015
Hornbeck,LarryD.
0.92
329,499
11.95%
10/1/2015
Harp,JamesO.Jr.
0.73
261,368
3.98%
3/2/2015
Annessa,CarlG
0.64
228,093
(0.82%)
2/18/2015
Total
10.98
3,932,053
RISKANALYSISANDINVESTMENTCAVEATS
Whilethecurrentstateoftheoilindustryishurtingenergycompanies,thisisnotthefirst
downcycle.Tenyearsago,categoryfiveHurricaneKatrinadevastatedhomesandbusinesses
inTexas,Louisiana,Mississippi,andAlabamaanddestroyedoilrigsintheGulfofMexico.
Then,themoratoriumfollowingtheDeepwaterHorizonSpillcompletelyhaltedalldeepwater
offshoredrillingandservicesforsixmonths,slammingprofits.Hornbeckhassurvivedvarious
catastrophicandotheradverseeventsinits18yearhistory.TheCompanyhastheresources
tomakeitthroughthecurrentmarketstateduetoitstechnologicallyadvancedJonesAct
qualifiedfleetandexperiencedmanagementexecutives.Inevitably,therewillalwaysbe
insecuritiesinsuchavolatileanddangerousindustry.
RegulatoryRisks
Variouslawsgovernthemarinetransportationandoffshoreoilindustry.Oneofthemost
importantsuchactsistheJonesAct.TheJonesActstipulatesthatonlyU.S.flaggedvessels
mayengageinU.S.coastaltrade.ThevesselsmustbeU.S.madeandmannedbyAmerican
mariners.Foreignoffshoresupplyvessels(OSVs)cannottransportcargofromU.S.portsto
offshorerigs.TheJonesActaidsHornbeckbecauseasignificantportionofitsvesselsinthe
GulfofMexicoareJonesActcertified,whileforeigncompetitorshaveamoredifficulttime
obtainingJonesActcertificationforvessels.Therefore,theJonesActcreatesabarriertoentry
intheGulfofMexico,reducingcompetitionandallowingHornbecktochargehighdayrates.
However,somepoliticianshavethreatenedtorepealoraltertheJonesAct,althoughnoneof
thepreviouseffortshaveexperiencedanysuccess.Nevertheless,repealormodificationofthe
JonesActwouldexposeHornbecktomorecompetitionandwouldlikelyforcetheCompanyto
loweritsdayrates,stackmorevessels,orlosecustomerstocompetitors.Furthermore,
competitorswhobuildvesselsinforeigncountrieswouldhaveacostadvantageover
HornbeckifpoliticiansrepealedtheJonesAct.
22
November12,2015
Inaddition,U.S.lawrequiresthatacertainpercentageofHornbecksmarineworkersareU.S.
citizens.Foreigncompetitors,however,havegottenawaywithhiringnonU.S.workersfor
lowerwagesintheGulfofMexico(GoM).Inthisregard,Hornbeckfacesacostdisadvantage
comparedtoforeigncompetitors.Hornbeck,isworkingtolobbypoliticianstochangethelaw
toactuallyforceforeigncompetitorstoabidebythesamerulesasU.S.operators.Ifthese
effortsfail,foreignoperatorswouldmaintaincostadvantagesoverHornbeck.
ExecutiveactionsorrulingsbyregulatoryagenciescouldalsoaffectHornbecksbusiness.
FollowingtheDeepwaterHorizonSpillin2010,theObamaAdministrationbannedalloffshore
drillinginU.S.coastalwaters.Asaresult,exploration&production(E&P)companiesdidnot
demandHornbecksorcompetitorsservices,hurtingrevenuesfor2010.Similarly,future
executiveactionscouldalsoreduceHornbecksabilitytooperateandgeneraterevenue.More
broadly,actionsbyagenciessuchastheEnvironmentalProtectionAgencytolimitoil
productioncouldrestrictoveralldemandforoil.Suchregulationswoulddecreasedemandfor
Hornbecksvessels,reducingtheCompanysrevenues.
OperationalRisks
Safety
Theoilandgasindustryisoneofthemostdangerousindustries,asoilandgasarebothhighly
flammable.TheGulfofMexico(GoM),Hornbeckscoremarket,isconsideredoneofthemost
dangerousmarkets,asdemonstratedbytheDeepwaterHorizonSpillinApril2010.ElevenBP
employeeswentmissingfollowingthespillandarestillmissing,creatingaliabilityforall
companiesintheenergyindustrytokeepworkerssafeandhealthy.Inordertoeffectively
compensateforthisrisk,itisimportantforHornbecktotakeextremeprecautionary
measures.Intermsofsafety,Hornbeckisanindustryleadercomparedtoitspeers.The
CompanyhasrecentlyimplementeditsGoalZerosafetyprogram,whichstrivestomaintaina
zeroincidencerateandazerolosttimeincidencerateforitsemployees.Hornbeckalsooffers
incentivestocrewswhomeetthisgoalbyhavingaSafetyBonusProgram,aSafetyAwards
Program,andaSafeBoatoftheYearProgram.
Cyclicality
DemandforHornbecksvesselsisdirectlyaffectedbythelevelsofoffshoredrillinginthe
Companysmarkets.MostdrillingintheGoMoccursduringthesummer,asweather
conditionsaremorefavorableforoffshoreprojects.Hornbecksincreasedrevenuesduring
thesecondandthirdquarterdirectlyreflectthisseasonality.Extremeweatherconditions,
suchasHurricanes,canalsoaffecttheCompanysoperations.Whilehurricanesareusually
consideredgoodformarinetransportationcompaniesduetotheneedtoservicetherigs,
hurricanescanalsodopermanentdamagetoHornbecksvessels.Thesedamagesmayforce
Hornbecktowithdrawvessels,reducingrevenues.However,recentweatherconditionsinthe
summermonthshavebeenidealforoffshoreactivities.Hornbeckshouldbeprudentin
predictingsimilarfutureweather,asitisdifficulttopredictstormsyearoveryear.
23
November12,2015
ManagementandLabor
InorderforHornbecktomaximizetheefficiencyofitstechnologicallyadvancedfleetofOSVs
andmultipurposesupplyvessels(MPSVs),itmusthaveahighlyskilledlaborforce.Without
propertrainingofitsemployees,Hornbecksoperationscannotbecarriedout.Withthe
currentstateoftheoilindustry,Hornbeckhasreduceditsmarinerlaborforceby20%,aswell
asdiscontinuingitsDefinedContributionPlan.Marinersworriedaboutthesafetyoftheirjobs
canhaveanadverseimpactontheirwork,astheirmindswanderelsewhere.Hornbeckshould
becautiouswhencuttingitsworkforcebecause,whenoilpricessurge,themarinerswill
demandahigherwagewhenhired.Withoutadoubt,thecurrentstateoftheoilindustryis
veryunique,butHornbeckwillbetaskedwithcorrectlybalancingitsshorttermcostcutting
measurewithitsfuturegrowthplanswhenoilrebounds.
FinancialRisks
HornbeckhasundertakenanambitiousOSVnewbuildprogram.Thecostoftheprogramis
$1.265billion,with$1.032billionalreadyincurredattheendof2014.Benefitsofthe
newbuildprogramincludeHornbeckmaintainingitsstatusasanoperatorofnew,stateofthe
artvessels,adifferentiatoramongitscompetitors.Thiscompetitiveadvantageallows
Hornbecktochargehigherdayratesthanmanyofitscompetitors.However,ifoilcontinuesto
staylowandE&Pcompaniesdemandlowerdayrates,thenHornbeckmaynotearnenough
revenuetojustifythecapitalexpendituresonthenewbuildprogram.
Althoughtheoilmarketiscurrentlyinadownturn,companiesoftenincreasecapital
expendituresduringadownturntoprepareforthefuture.Hornbeckmadeasimilarmovein
themonthsfollowingtheDeepwaterHorizonOilSpillandthesubsequentmoratoriumon
offshoredrilling.Whileothercompetitorsdidnotsignificantlyincreasecapitalexpenditures,
Hornbeckinvestedheavilyinitsfifthnewbuildprogram.ThismoveenabledtheCompanyto
emergewithnewervesselsandchargehigherdayratestoitscustomers.
CreditRisk
InSeptember2015,MoodysdowngradedHornbecksCorporateFamilyRatingandsenior
unsecurednotesfromB2toBa3.MoodysalsodowngradedHornbecksoutlookfromstable
tonegative.Moodysreasonedthatcommoditypriceswouldstaylowforasignificantperiod
oftime,creatingadownwardpressureonrigutilizationratesandHornbecksdayrates.
However,ratingagencieshavedowngradedthecreditratingsofotherenergycompaniesas
well.In2012,whenoilpricesweremuchhigher,MoodysdowngradedSEACOR,oneof
Hornbeckscompetitors,toBa1status,belowHornbeckscurrentBa1status.TheMoodys
downgradecouldimpedeHornbecksabilitytoissueadditionalnotesorbondstoraisemoney
forfuturecapitalexpenditures.Table6illustratesimportantratiosindeterminingcreditrating
forHornbeckandseveralofitscompetitors.
24
November12,2015
Table6:CompetitorsLiquidityRatios
Company
Debt/Equity
CurrentRatio
QuickRatio
Hornbeck
0.75x
4.54x
4.54x
Tidewater
0.62x
1.70x
1.61x
SEACOR
0.62x
3.26x
3.17x
Gulfmark
0.60x
3.54x
3.54x
AlthoughHornbecksdebttoequityratioislargerthanitscompetitors,itsfinancialhealthis
better.TheCompanyhasthehighestcurrentandquickratiosofanyofitscompetitors,
meaningthattheCompanyscurrentassetshaveagreatervaluethanitscurrentliabilities.In
addition,Hornbeckhasanuntapped$300millionrevolvingcreditfacility,whichwillallowitto
financefuturecapitalexpendituresifneedbe.
Hornbeckengagesinvariouslongtermcontractswithcustomers,typicallylastingbetween
oneandfiveyears.AlthoughtheCompanytriestoestimatethecreditworthinessofits
competitors,itacknowledgesthatitcannotpredictifcustomerswillfulfilllongterm
contracts.FailureofcustomerstopayontimecoulddecreaseHornbecksrevenues.
Additionally,Hornbeckgrantscredittocustomersonashorttermbasisbutdoesnot
collateralizereceivables,reducingcustomeraccountability.TheCompanyuseshistoricaldata
toestimateuncollectibleaccounts;however,theseestimatesmaybeinaccurate,especiallyin
abearmarket.
ExchangeRisks
Currently,Hornbeckdoesnothedgeagainstanyforeigncurrencyratefluctuations.With19
vesselsoperatinginforeignmarkets,fluctuationscanresultinalossincurrencyexchange.
WhilemostofHornbecksforeignactivitiesaredenominatedtotheU.S.Dollar,itstillcollects
timecharterpaymentsandvalueaddedtaxpaymentsinlocalcurrenciesforfourofitsvessels.
Presently,theselosseshavenothadamaterialimpactonHornbecksprofitability.Whilethe
currentstateoftheoilindustryisdaunting,Hornbecklookstofurtheritsmarketpresencein
bothBrazilandMexico,whichcancreatecurrencyexchangerisksgoingforward.
FINANCIALPERFORMANCEANDPROJECTIONS
Ourteamcalculateda12monthtargetpriceof$14.63forHornbeckOffshoreServicesInc.To
determinethistargetprice,wemadevariousassumptionsandprojections.Weanalyzed
Hornbeckscurrentoperations,theoffshoreexplorationandproduction(E&P)industry,theoil
andgaspriceenvironment,LatinAmericangeopolitics,andtheglobaleconomyasawhole.
ThisanalysisaffectsthefinancialperformanceandprojectionsofHornbecksoperating,
investing,andfinancingactivities.
25
November12,2015
OperatingActivities
ToaccuratelyforecastHornbecksoperatingcashflows,wedevelopedaprice/quantity
revenuemodel.Ourmodelfocusedonseveralkeydrivers,includingactivefleetsizeand
composition,oilprices,utilizationratesofoffshoresupplyvessels(OSVs)andmultipurpose
supportvessels(MPSVs),anddayratesforOSVsandMPSVsintheU.S.GulfofMexico(GoM)
andLatinAmerica.Hornbecksrevenuedirectlydependsuponthenumberofvesselsin
operationandprice,ordayrate,ofvessels.Utilizationanddayratesvarybasedoncurrentoil
&gasmarketconditionsandcustomerdemandforHornbecksnewgenerationvessels.Inthe
currentcommoditypricedownturn,offshoreE&Pcompaniesaretryingtocutcosts.
ThelevelofoffshoredrillingactivitybyE&Pcompaniesdeterminesthedemandfor
Hornbecksvessels.Inthelowcommoditypriceenvironment,manyE&Pcompaniesare
haltingproductionandtheconstructionofnewwellsasthefirmsstruggletobreakevenon
thesaleofcrudeoil.Asaresult,thesecompaniesdecreaserigcountsand,therefore,the
demandformarinesupportvesselssuchasHornbecksdecreases.Asvesseldemanddeclines
andE&Pfirmscontinuetocutcosts,thecompaniessubsequentlypressureHornbecktolower
itsdayrates.HornbecksmanagementstatedthattheCompanywouldcontinuestacking
vesselsifdemandisnotpresentattheCompanysdesiredprice.Ourteamutilized
managementguidancetoforecastactiveandstackedvesselcountsaswellasutilizationrates
forthenextyear.From2016through2018,weutilizedahistoricalproxyandindustrydatato
forecastutilizationratesanddayrates.After2018,weuseda3%growthrateforOSVand
MPSVdayrates,consistentwithhistoricaldataandindustryguidance.Weconsideredall
previouslymentioneddriversinformingourrevenueassumptions.
Figure11HornbecksEffectiveDayratesHaveDeclinedOverthePastTwoYears
$26,000
$24,000
$22,000
$20,000
$18,000
$16,000
$14,000
$12,000
Source:HornbeckOffshoreQuarter3201510Q
26
9/1/2015
8/1/2015
7/1/2015
6/1/2015
5/1/2015
4/1/2015
3/1/2015
2/1/2015
1/1/2015
12/1/2014
11/1/2014
10/1/2014
9/1/2014
8/1/2014
7/1/2014
6/1/2014
5/1/2014
4/1/2014
3/1/2014
2/1/2014
1/1/2014
12/1/2013
11/1/2013
9/1/2013
10/1/2013
$10,000
November12,2015
Weforecastedoperatingexpenses,depreciation,andamortizationbasedonhistoricaldata.
TheCompanysoperatingexpensesreflectitscurrentandcontinuedneartermcostcutting
measures.DepreciationandamortizationaccountforchangesinHornbecksfleetsizeasa
resultoftheadditionorsaleofvessels.
InvestingActivities
OurassumptionsandforecastsforHornbecksinvestmentstrategyarepredominantlybased
ontheprogressoftheCompanysfifthnewbuildprogram.Hornbecksmanagementdisclosed
thebreakdownoftheremainingcapitalexpenditures(CAPEX)intheprogramthroughtheend
of2016.TheCompanyhasalreadyincurredabout90%ofallexpensesassociatedwiththe
program.Becausetheoilandgasindustryissufferingacommoditypricedownturnlikelyto
lastuntilatleasttheendof2017,wehavenotforecastedanygrowthCAPEXforHornbeckin
thenearterm.SuppressedcommoditypriceswillcontinuetopressureE&Pcompaniestostop
drillingand,therefore,theCompanywilllikelynotincreasethesizeofitsfleet.Inadditionto
CAPEXassociatedwiththenewbuildprogram,HornbeckhasannualmaintenanceCAPEX
associatedwithmaintainingitscurrentfleet.Theseexpendituresremainconsistentwith
historicaldepreciationdata.
FinancingActivities
Basedonmanagementguidance,wedeterminedthatHornbeckwillnotrequireanyshort
termfinancing.Despitethestockpricebeingnearits52weeklow,wedonotexpect
managementtopursueanysharerepurchaseprogramsinthenearterm.Managementis
largelyuncertainaboutitsstockpriceoverthenextfewyearsofsuppressedoilpricesand
believesthatthestockpricemayplungeevenlowerbeforeitrebounds.
Hornbecksecureditsthreeseniornotesoutstandingatattractiveinterestrates.Thenearest
maturityisa1.500%convertibleseniornoteduein2019withabalanceof$248.5millionasof
December31,2014.Thesecondnearestmaturityisa5.875%seniornoteduein2020witha
balanceof$375million.Thelatestmaturityisa5.000%seniornoteduein2021witha
balanceof$450million.TheCompanyhasa$300millionrevolvermaturingin2020.Asof
November12,2015therevolverisundrawnandmanagementexpectsittoremainundrawn.
Favorablelongtermdebttermsandmaturitiesalongwiththeundrawnrevolversignifythat
Hornbeckhasgoodliquidityandwillnotneedtoraiseanyadditionalcapitalinthenearterm.
27
November12,2015
SITEVISIT
OnFriday,October2,2015,BurkenroadReportsanalystscoveringHornbeckOffshore
ServicesInc.metwithmanagementattheCompanysheadquartersinCovington,Louisiana.
JimHarp,ChiefFinancialOfficer(CFO),PotterAdams,DirectorofCorporateFinance,andErica
Babycos,SeniorAnalyst,ledusthroughHornbecksinvestorrelationspresentation.Mr.Harp
andMr.Adamsexplainedthattheyarebearishonoilpricesforthenextyear.However,the
overarchingthemeofthemeetingwasthatHornbeckispreparedtoweathertheunfavorable
E&Penvironment.
Asmarketconditionsremaindepressed,Hornbeckisstackingvessels,oressentiallytaking
vesselsoutofserviceandintostorage,tocutdownondrydockfeesassociatedwithnon
utilization.Stackinganuncontractedvesselsavesonaverage$7,500perdayincosts.The
stackedvesselsincreasetheCompanysutilizationrates,preventingwastefulspendingon
unusedvessels.Tosurviveinthedownmarket,theCompanyisalsoreducingoperatingcosts
throughsalarycuts,layoffs,andthesuspensionofits401kmatchingprogram.
28
November12,2015
INDEPENDENTOUTSIDERESEARCH
TogainafurtherunderstandingofHornbeckOffshoreServicesInc.sstrategyandthe
industryinwhichitoperates,ourgroupconsultedwithindustryexperts.Wefirsttalkedwith
theformerChiefExecutiveOfficer(CEO)ofoneofHornbeckslargestcompetitors.Thenight
beforewespokewiththisCEO,hehadbeenatanoilandgasindustryconferenceinHouston,
ledbytwoindustryexperts.Heclaimedthattheseexpertslaidoutaverycompelling
argumentastowhyoilwillincreaseto$80perbarrelbytheendof2016.Theindustryleaders
believesupplyanddemandwillcatchupwithoneanotherandtheenergyindustrywill
reboundbythebeginningof2017.Inthemeantime,thisCEOisconcernedwithHornbecks
strategyofkeepingdayrateshigherthanmarketprice.Hewasfacedwithasimilarsituationof
lowoilpricesin2002whenhebecameCEOofhiscompany.Hemadethedecisiontokeep
highdayratesinsteadofcuttingpricesandmaintainingmarketshare.Thischoiceturnedout
tobeacostlymistakeforthatcompanyuntilhehadrealizedhiserrortwoyearslater.
AlthoughHornbeckisrecognizedasthepremierevesselproviderthatdeserveshigherrates,
thisCEObelievesHornbeckismakingthesamemistakehedid13yearsago.
OurteamalsointerviewedKenCarroll,aTulaneprofessorwhohas15yearsofexperienceasa
sellsideanalystfortheexplorationandproduction(E&P)sector.Carrollagreedwith
Pickeringsforecastthatoilpriceswillrisesoonenough,specificallycitingthedeclinecurveas
thereasonwhy.Thisdeclinecurvemeansthatwhenadrillbeginstopumpoilandgas,
productionnaturallybeginstodecreaseasthelifeofawellrunsitscourse.Hebelievesthat
theindustryisnotdrillingenoughwellstooffsetthisnaturaldeclinerateandthattherewill
beasnapbackinprices.CarrollalsodidnotagreewithHornbecksstrategyofkeepinghigh
dayrates,buthewasmoreconcernedwiththestackingofvessels.Whiletakingexcesssupply
outofthemarketcertainlyhelpsbusinessintheshortrun,Hornbeckhashadtofirethecrews
whomannedthosevessels.Onceoilpricesbounceback,CarrollisconcernedthatHornbeck
willbehardpressedtofindexperiencedmarinersforthepreviouslystackedvessels.This
notionistakingintoaccountthefactthatthesevesselsneedtobemannedbyAmerican
employeesinordertobeJonesActcertified.Bothindustryexpertsweinterviewedseemed
concernedforHornbecksfutureandwehaveincludedtheiropinionsinouranalysis.
29
November12,2015
ANOTHER WAY TO LOOK AT IT

ALTMANZSCORE
TheAltmanZScoreformulawasdevelopedbyNewYorkUniversityprofessorEdwardAltman
tomeasureacompanyslikelihoodofgoingbankrupt.Altmanselectedfivekeyvariablesto
includeinhisformula:workingcapitaltototalassets,retainedearningstototalassets,
earningsbeforeinterestandtaxes(EBIT)tototalassets,marketvalueofequitytobookvalue
oftotalliabilities,andsalestototalassets.HavingaZScorebelow1.80indicatesthata
companyhasaveryhighprobabilityofgoingbankruptandisinthedistresszone.A
companywithaZScorebetween1.80and2.99isconsideredtobeinthegrayarea.AZ
Scoreover3.0indicatesthatacompanyissafefrombankruptcyandfinancialrisk.
AsseeninTable7,HornbeckOffshoreServicesInc.hadaZscorebelow1.80ineveryyear
from2011to2015,signifyingthattheCompanyisataveryhighriskofbankruptcyandin
distress.Particularlynotableisthe36%dropinHornbecksZScorefrom2014to2015.This
largedropindicatesthatHornbecksprobabilityofbankruptcyhasgrownsignificantlyover
thepastyear.ThedeclineinHornbecksvesselutilizationratesanddayrateshassignificantly
decreasedtheCompanysmarketvalueofequityandearningsbeforeinterestandtaxes,
thereforedecreasingthecontributingvalueoftwoofthefivekeyvariablestotheCompanys
ZScore.Asoilpricesremainlowoverthenextfewyears,Hornbeckwillcontinuetobeat
highriskofbankruptcy.However,asseeninTable7,HornbecksZScoreisnearlyequaltoits
publicpeeraveragein2015,despitebeingwellbelowitinthepreviousfouryears.Whilethe
Companyisathighriskofbankruptcy,intermsofrelativefinancialhealth,ithascushioned
thelowoilpricesbetterthanitspeers.
Table7:AltmanZScoreAnalysis
Company
2011 2012 2013
2014
2015
Hornbeck
1.38
1.24
1.56
1.18
0.85
Gulfmark
2.45
1.70
2.07
1.58
0.39
SEACOR
1.54
1.53
1.81
1.81
0.94
Tidewater
2.97
2.43
1.99
1.93
1.29
PeerAverage
2.09 1.73
1.86
1.63
0.87
30
November12,2015
PETERLYNCHEARNINGSMULTIPLEVALUATION
PeterLynch,asuccessfulinvestorandauthorofOneUponWallStreet,developedauseful
chartingtoolformakinginvestmentdecisions.Mr.Lynchcomparesthepriceofasecurityto
thetheoreticalpriceof15Xthestocksearningspershare(EPS).Hewouldbuystocksthat
tradedwellbelowthe15XEPSline,andsellstocksthattradedwellabovetheline.
AsofNovember12,2015,HornbeckOffshoreServicestradesat$12.44,whichis
approximately5XEPS.SincethepriceofHornbeckplotswellbelowthe15XEPSline,Mr.
LynchwouldpurchasetheCompanysshares.
Figure12:HornbeckPassesPeterLynchsValuationMethod
31
November12,2015
WWBD?
What Would Ben (Graham) Do?
BenGrahamdevelopedasystemofpickingofstocksthatpracticedvalueinvesting.As
outlinedinhisbookSecurityAnalysis,Grahamsoughttoascertainthetrue,intrinsicvalueof
companiesandpurchasestocksthatthemarketundervalued.Inparticular,Grahambelieved
inbuyingstockswithasufficientmarginofsafety,whichisthedifferencebetweena
companysintrinsicvalueanditsshareprice.Grahamemployedtendifferenthurdlesto
determinewhichstockstopurchase,butweonlyuseeightofhishurdlesinourreport.
BasedontheBenGrahamanalysis,HornbeckOffshoreServicesInc.isanextremelyattractive
investment.HornbeckpassessevenoftheeighthurdlesoutlinedbyMr.Graham(seeFigure
13).Hornbecksearningstoprice(E/P)ratioisapproximately20%,whiletheyieldontheTen
YearU.S.TreasuryBondmultipliedby2isonly4.20%.SinceHornbecksE/Pratioisgreater
thantwicetheyieldontheTenYearU.S.TreasuryBond,itpassesthefirsthurdle.Hornbeck
passesthesecondhurdle,asitspricetoearnings(P/E)ratioiscurrently33.8,whichisless
thanhalfthestockshighestyearendingP/Eratio,208.8.Hurdlethreestatesthatthestocks
dividendyieldmustbeatleasthalfoftheyieldontheTenYearU.S.TreasuryBond.Hornbeck
doesnotpayadividend,andfailsthishurdle.
Topassthefourthhurdle,Hornbecksstockpricemustbelessthan1.50Xitsbookvalue.Asof
November12,2015,Hornbecktradesat$12.44,farlessthan$60.48,or1.50Xitsbookvalue
pershare.Hornbeckstotaldebtisapproximately$1.07billion,whichislessthanitsbook
valueof$1.4billion.Therefore,Hornbeckpassesthefifthhurdle.TheCompanyscurrent
ratio,orcurrentassetsdividedbycurrentliabilities,is5.08,whichisgreaterthanthevalueof
2.00neededtopassthesixthhurdle.Hornbeckscompoundannualgrowthrate(CAGR)over
thepastfiveyearsis32%.Theseventhhurdlerequirescompaniestohaveatleasta7%
earningsgrowthoverthepastfiveyears,andHornbeckclearlysurpassesthisbenchmark.
Hornbeckhasonlyonedeclineinearningsoffivepercentormoreinthepastfiveyears.
Therefore,theCompanyhasstableearningsgrowth,andpassestheeighthhurdle.
Figure13:BenGrahamAnalysis
32
November12,2015
HORNBECKOFFSHORESERVICESINC.(HOS)
BenGrahamAnalysis
Hurdle#1:AnEarningstoPriceYieldof2XtheYieldon10YearTreasury
Earningspershare(ttm) $2.44
EarningstoPriceYield
20%
10YearTreasury(2X)
4.20%
Price:
$12.44
Yes
Hurdle#2:AP/ERatioDownto1/2oftheStocksHighestin5Yrs
P/Eratioasof
P/Eratioasof
P/Eratioasof
P/Eratioasof
P/Eratioasof
12/31/10
12/31/11
12/31/12
12/31/13
208.8
68.9
110.8
80.7
12/31/14 47.1
CurrentP/ERatio 33.8
Yes
Hurdle#3:ADividendYieldof1/2theYieldon10YearTreasury
Dividendspershare(ttm) $
Price: $12.44
DividendYield
N/A
Nil
1/2Yieldon10YearTreasury
1.05%
No
Hurdle#4:AStockPricelessthan1.5BV
StockPrice
$12.44
$12.44
BookValuepershareasof
9/30/15
$40.32
150%ofbookValuepershareasof
9/30/15
$60.48
Yes
Hurdle#5:TotalDebtlessthanBookValue
Interestbearingdebtasof
9/30/15
$1,073,472
Bookvalueasof
9/30/15
$1,445,371
Yes
Hurdle#6:CurrentRatioofTwoorMore
Currentassetsasof
9/30/15
$410,183
Currentliabilitiesasof
9/30/15
$80,686
Currentratioasof
9/30/15
5.08
Yes
Hurdle#7:EarningsGrowthof7%orHigheroverpast5years
EPSforyearended
12/31/14
$0.53
EPSforyearended
12/31/13
$0.61
EPSforyearended
12/31/12
$0.45
EPSforyearended
12/31/11
$0.10
EPSforyearended
12/31/10
$0.10
Yes
Hurdle#8:StabilityinGrowthofEarnings
EPSforyearended
12/31/14
$0.53
EPSforyearended
12/31/13
$0.61
36%
EPSforyearended
12/31/12
$0.45
350%
EPSforyearended
12/31/11
$0.10
0%
EPSforyearended
12/31/10
$0.10
Yes
Stockpricedataasof November12,2015
33
13%
54,245
466,195
822
169,420
53,428
378,629
1,587
171,103
2,515
(25,776)
(47,352)
(92)
100,398
36,320
64,078
47,315
$111,393
2,167
(6,048)
(57,869)
185
56,079
21,384
34,695
2,322
$37,017
$0.98
$0.07
$(0.17)
$1.22
Ea rni ngs pers ha re:

Ba s i cea rni ngs pers ha refromconti nui ngopera ti ons
Ba s i cea rni ngs pe rs ha refromdi s conti nuedopera ti ons
Nonrecurri ngi tems
Ba s i cea rni ngs percommons ha re
Di l utedea rni ngs pers ha refromconti nui ngopera ti ons

Di l utedea rni ngs pers ha refromdi s conti nuedopera ti ons
Nonrecurri ngi tems
Di l utedea rni ngs percommons ha re
Wei ghteda vera ges ha res ofcommons tock:
Ba s i c
Di l uted
SELECTEDCOMMONSIZEAMOUNTS(%ofopera ti ngrevenue)
Opera ti ngexpens es
Genera l a nda dmi ni s tra ti ve expens es
Tota l opera ti ngcos ts
Opera ti ngi ncome
Incometa xexpens e
Incometa xexpens e/Incomebeforei ncome ta xes
Neti ncome
YEARTOYEARCHANGES
Revenues
Genera l a nda dmi ni s tra ti ve expens es
Opera ti ngi ncome
Interes ti ncome
Interes texpens e
Incomebeforei ncome ta xes
Neti ncome
61,420
19,984
7,486
296,500
71,301
44,149
239,239
55,332
30,630
226,462
52,005
21,670
73,675
45,178
345,315
(350)
117,644
35,895
36,548
43.65%
9.75%
69.07%
31.21%
6.63%
36.18%
20.32%
18.3%
5.6%
18.3%
45.4%
16.1%
18.2%
79.0%
200.9%
35,311
36,080
48.88%
9.75%
74.53%
25.39%
4.62%
38.13%
7.99%
40.0%
27.3%
39.8%
119.0%
161.4%
3.0%
1249.6%
1545.4%
15.8%
23.9%
1.5%
1.0%
56.8%
35.1%
39.7%
20.5%
46.71%
8.55%
73.44%
26.69%
8.25%
37.33%
13.95%
36,172
36,692
$1.79 $2.40
$1.29 $0.01
$(1.30)
$4.38 $2.41
$0.97
$0.06
$(1.60)
$2.63
$1.79 $2.43
$1.31 $0.02
$(0.72)
$3.82 $2.45
$0.54
$19,215
$0.53
1.4%
10.4%
13.1%
167.3%
41.2%
41.9%
216.8%
204.7%
45.62%
8.83%
74.86%
49.69%
15.92%
37.42%
26.63%
35,630
36,116
34
20.3%
19.4%
15.7%
30.7%
38.9%
41.4%
39.5%
38.5%
42.17%
9.57%
71.16%
28.84%
8.13%
36.60%
14.08%
35,706
36,253
$(0.57)
$0.42 $0.53
$0.99
$(0.57)
$0.44 $0.54
$1.01
$35,853
393
1,188
200
$0.51
$18,301
$0.50
30.3%
28.1%
8.6%
34.7%
63.5%
24.4%
44.8%
45.3%
47.25%
10.48%
81.25%
28.22%
7.87%
38.81%
12.40%
35,832
36,383
31.3%
31.3%
20.6%
8.8%
2.9%
36.6%
1.3%
4.5%
50.00%
10.00%
73.00%
37.00%
9.77%
37.00%
16.64%
35,920
36,448
$(0.19)
$0.21 $0.50
$0.40
$(0.19)
$0.21 $0.51
$0.40
$14,424
381
250
28,600
9,859
69,993
45,757
14,377
31Ma rE
$98,593
250
29,875
10,162
71,748
47,163
14,422
250
29,140
10,004
70,901
46,429
14,468
2016E
30JunE
30SepE
$101,623 $100,040
250
32,244
10,726
75,021
49,781
14,513
31DecE
$107,264
1,000
119,858
40,752
287,662
189,130
57,780
2016E
$407,520
$0.26
$9,329
$0.26
21.7%
22.8%
11.2%
6.1%
9.4%
35.8%
0.0%
0.8%
46.02%
9.68%
74.93%
36.14%
10.54%
37.39%
17.65%
35,920
36,448
26.8%
25.5%
17.1%
57.2%
16.8%
37.4%
74.2%
74.0%
46.41%
10.00%
70.99%
29.01%
5.56%
37.00%
9.46%
35,920
36,448
$(0.76)
$1.65 $0.26
$2.41
$(0.76)
$1.68 $0.26
$2.44
$87,793
25.5%
18.0%
22.2%
24.1%
36.4%
42.1%
46.9%
47.3%
46.41%
10.00%
70.60%
29.40%
5.86%
37.00%
9.97%
35,920
36,448
$0.28
$0.28
$0.28
$0.28
$10,133
14.0%
15.5%
17.9%
11.2%
34.4%
45.2%
34.9%
33.0%
46.41%
10.00%
70.87%
29.13%
5.68%
37.00%
9.67%
35,920
36,448
$0.27
$0.27
$0.27
$0.27
$9,669
2.5%
9.5%
2.5%
20.8%
25.0%
19.0%
36.5%
36.5%
46.41%
10.00%
69.94%
30.06%
6.36%
37.00%
10.84%
35,920
36,448
$0.32
$0.32
$0.32
$0.32
$11,625
18.1%
17.4%
15.4%
33.3%
15.8%
35.1%
53.9%
53.6%
46.41%
10.00%
70.59%
29.41%
5.87%
37.00%
10.00%
35,920
36,448
$1.12
$1.12
$1.13
$1.13
$40,756
214
48,143
372,655
55,060
179,761
228,902
75,417
20,192
11,000
80,306
11,000
40,699
55,002
14,303
2015E
$497,356
(10,262) (9,921) (9,712) (11,850) (41,745) (14,100) (14,100) (14,100) (14,100) (56,400)
440
482
94
1,016
58
58
58
58
234
57,290 30,309 23,572 29,049 140,220 14,808 16,083 15,348 18,452 64,692
21,437 11,094 9,148 10,748 52,427 5,479 5,951 5,679 6,827 23,936
35,853 19,215 14,424 18,301 87,793 9,329 10,133 9,669 11,625 40,756
12,188
94,476
11,004
32,809
54,938
20,958
6,392
31DecE
$110,005
1,086
39,355
13,063
97,091
57,542
20,172
6,314
2015E
30JunA
30SepA
$136,446 $116,281
November12,2015
(30,733)
501
140,274
52,367
87,907
618
$88,525
11,892
100,782
33,056
66,898
31Ma rA
$134,624
2014A
$634,793
2013A
$548,145
2012A
$463,309
Fortheperi odended
Revenues
Cos ts a ndexpens es :
Depreci a ti on
Amorti za ti on
Depreci a ti ona nda morti za ti on
Genera l a nda dmi ni s tra ti veexpens es
Tota l opera ti ngcos ts
Ga i nons a l eofa s s ets
Opera ti ngi ncome
Otheri ncome(expens e):
Interes ti ncome
Los s onea rl yexti ngui s hmentofdebt
Interes texpens e
Otheri ncome(expens e),net
Incomebeforei ncome ta xes
Incometa xexpens e
Incomefromconti nui ngopera ti ons
Incomefromdi s conti nuedopera ti ons ,netofta x
Ne ti ncome
Inthous a nds
AnnualandQuarterlyIncomeStatements
As of
31De c12A
As s ets
Curre nta s s e ts :
Ca s ha ndca s he qui va l ents
$576,678
Accounts rece i va bl e,ne tofa l l owa nce
103,265
Deferre dta xa s s e ts ,ne t
28,720
Curre nta s s e ts fromdi s conti nue dopera ti ons
2,447
As s ets hel dfors a l e
Othercurre nta s s ets
20,399
Tota l curre nta s s e ts
731,509
Property,pl a nta ndequi pme nt,net
1,643,623
68,154
Deferre dcha rge s ,net
Othera s s ets
14,615
Longte rma s s e ts fromdi s conti nue dopera ti ons
173,830
Tota l a s s e ts
$2,631,731
Curre ntl i a bi l i ti es :
Accounts pa ya bl e
$48,286
Accruedi nteres t
14,790
Accruedpa yrol l a ndbenefi ts
12,441
Deferre dreve nue
16,854
Curre ntl i a bi l i ti es fromdi s conti nue dopera ti ons
4,197
Othera ccrue dl i a bi l i ti es
8,030
Tota l curre ntl i a bi l i ti es
343,505
Longtermde bt,netofori gi na l i s s ue di s count
850,530
Deferre dta xl i a bi l i ti es ,ne t
270,478
Longterml i a bi l i ti e s fromdi s conti nuedope ra ti ons
Otherl i a bi l i ti e s
1,373
Tota l l i a bi l i ti es
1,465,886
Sha rehol de rs 'equi ty:
Commons tock,$.01pa rva l ue
355
Addi ti ona l pa i di nca pi ta l
705,658
460,090
Reta i nede a rni ngs
Accumul a te dothe rcompre hens i ve i ncome
(258)
Tota l s tockhol ders 'equi ty
1,165,845
Tota l l i a bi l i ti es a nds tockhol de rs 'equi ty
$2,631,731
SELECTEDCOMMONSIZEAMOUNTS(a s a %ofopera ti ngreve nue)
Accounts rece i va bl e,ne tofa l l owa nce
22.29%
354.76%
14.71%
Accounts pa ya bl e
10.42%
Accruedpa yrol l a ndbenefi ts
2.69%
Othera ccrue dl i a bi l i ti es
1.73%
SELECTEDCOMMONSI ZEAMOUNTS(a s a %oftota l a s s e ts )
Tota l curre nta s s e ts
27.80%
62.45%
2.59%
Tota l curre ntl i a bi l i ti es
13.05%
Longtermde bt,netofori gi na l i s s ue di s count
32.32%
Deferre dta xl i a bi l i ti es ,ne t
10.28%
Tota l l i a bi l i ti es
55.70%
Tota l s tockhol ders 'equi ty
44.30%
Inthous a nds
AnnualandQuarterlyBalanceSheets
$42,404
14,890
14,830
1,561
9,359
83,045
1,073,472
392,492
1,560
1,117
1,551,686
1,573
1,581,702
16,225
97,512
1,078,366
404,251
17,262
83,841
1,075,896
404,756
2,465
1,566,958
$55,846
14,886
10,056
499
$40,800
13,490
11,232
1,057
1,260
1,552,325
15,378
80,686
1,080,859
389,520
$37,028
13,591
14,097
592
$2,997,696
15,762
410,183
2,516,894
55,318
15,301
1,260
1,553,483
11,121
79,011
1,080,859
392,353
$43,316
13,591
10,131
852
$3,019,542
15,762
412,351
2,533,791
58,098
15,301
$307,214
83,699
5,676
31DecE
1,260
1,553,483
11,121
79,011
1,080,859
392,353
$43,316
13,591
10,131
852
$3,019,542
15,762
412,351
2,533,791
58,098
15,301
$307,214
83,699
5,676
31Dec15E
1,260
1,553,599
9,579
69,941
1,080,859
401,539
$37,311
13,591
8,727
734
$3,031,375
15,762
412,955
2,541,415
61,704
15,301
$314,834
76,683
5,676
31Ma rE
1,260
1,563,249
9,765
71,035
1,080,859
410,095
$38,035
13,591
8,896
748
$3,053,544
15,762
423,942
2,548,992
65,309
15,301
30SepE
10,195
73,565
1,080,859
425,738
1,260
1,581,422
9,508
69,526
1,080,859
418,186
1,260
1,569,830
$39,710
13,591
9,288
781
$3,097,785
$3,072,182
$37,035
13,591
8,662
729
15,762
445,953
2,564,012
72,519
15,301
$342,901
81,614
5,676
31DecE
15,762
431,442
2,556,525
68,914
15,301
$333,886
76,118
5,676
2016E
$324,332
78,171
5,676
30JunE
1,260
1,581,422
10,195
73,565
1,080,859
425,738
$39,710
13,591
9,288
781
$3,097,785
15,762
445,953
2,564,012
72,519
15,301
$342,901
81,614
5,676
31Dec16E
November12,2015
20.63%
387.45%
10.86%
6.68%
2.34%
1.47%
13.08%
84.16%
2.36%
2.84%
36.73%
13.43%
53.10%
46.90%
17.06%
387.74%
13.51%
9.66%
2.45%
2.10%
21.90%
74.99%
2.61%
3.59%
37.54%
13.00%
54.29%
45.71%
16.15%
81.41%
2.04%
2.82%
36.18%
13.61%
52.69%
47.31%
82.91%
1798.36%
45.05%
30.31%
8.34%
12.82%
35
14.68%
82.93%
2.00%
3.24%
35.80%
13.42%
52.51%
47.49%
77.09%
1830.80%
44.14%
40.93%
7.37%
11.89%
13.68%
83.96%
1.85%
2.69%
36.06%
12.99%
51.78%
48.22%
74.35%
2164.49%
47.57%
31.84%
12.12%
13.22%
13.66%
83.91%
1.92%
2.62%
35.80%
12.99%
51.45%
48.55%
76.09%
2303.35%
52.81%
39.38%
9.21%
10.11%
13.66%
83.91%
1.92%
2.62%
35.80%
12.99%
51.45%
48.55%
16.83%
509.45%
11.68%
8.71%
2.04%
2.24%
13.62%
83.84%
2.04%
2.31%
35.66%
13.25%
51.25%
48.75%
77.78%
2577.69%
62.58%
37.84%
8.85%
9.72%
13.88%
83.48%
2.14%
2.33%
35.40%
13.43%
51.19%
48.81%
76.92%
2508.29%
64.27%
37.43%
8.75%
9.61%
14.04%
83.22%
2.24%
2.26%
35.18%
13.61%
51.10%
48.90%
76.09%
2555.49%
68.89%
37.02%
8.66%
9.50%
14.40%
82.77%
2.34%
2.37%
34.89%
13.74%
51.05%
48.95%
76.09%
2390.37%
67.61%
37.02%
8.66%
9.50%
14.40%
82.77%
2.34%
2.37%
34.89%
13.74%
51.05%
48.95%
20.03%
629.17%
17.80%
9.74%
2.28%
2.50%
361
356
357
358
358
358
358
358
358
358
358
358
724,379
736,294
736,813
741,412
744,526
746,913
746,913
749,300
751,687
754,074
756,461
756,461
571,483
635,017
670,870
690,085
704,509
722,810
722,810
732,139
742,272
751,941
763,566
763,566
(795)
(902)
(1,205)
(1,156)
(4,022)
(4,022)
(4,022)
(4,022)
(4,022)
(4,022)
(4,022)
(4,022)
1,295,428 1,370,765 1,406,835 1,430,699 1,445,371 1,466,059 1,466,059 1,477,775 1,490,295 1,502,351 1,516,363 1,516,363
$2,834,280 $2,922,451 $2,973,793 $3,012,401 $2,997,696 $3,019,542 $3,019,542 $3,031,375 $3,053,544 $3,072,182 $3,097,785 $3,097,785
4,673
1,538,852
$52,930
14,890
13,451
8,786
117
11,497
101,671
1,064,092
368,416
$2,973,793
$2,922,451
$3,012,401
26,894
19,290
442,274
2,498,056
60,221
11,850
26,894
24,838
480,190
2,421,026
60,651
11,926
30Se pA
$302,618
86,456
5,347
2015E
20,049
382,142
2,459,486
68,953
11,870
13,779
620,630
2,125,374
74,075
13,442
759
$2,834,280
30JunA
$263,405
105,180
27,505
31Ma rA
$279,458
111,613
37,387
$185,123
130,969
45,531
470
31De c14A
$439,291
93,512
72,470
1,578
31De c13A
Fortheperi odended
Ca s hFl owFromOpera ti ons :

Neti ncomefromconti nui ngopera ti ons
Adjus tments :
Depreci a ti on
Amorti za ti on
Stockba s edcompens a ti onexpens e
Provi s i onforba ddebts
Deferredta xexpens e
Amorti za ti onofdeferredfi na nci ngcos ts
Ga i nons a l eofa s s ets
Los s onea rl yexti ngui s hmentofdebt
Cha nges i nopera ti nga s s ets a ndl i a bi l i ti es :
Accounts recei va bl e
Otherrecei va bl es a ndcurrenta s s ets
Deferreddrydocki ngcha rges
Accounts pa ya bl e
Accruedl i a bi l i ti es a ndotherl i a bi l i ti es
Accruedi nteres t
Netca s hprovi dedbyopera ti nga cti vi ti es
Ca s hfl ows fromi nves ti nga cti vi ti es :
Cos ts i ncurredfornewbui l dprogra ms
Netproceeds froms a l eofa s s ets
Ves s el ca pi ta l expendi tures
Nonves s el ca pi ta l expendi tures
Netca s hus edi ni nves ti nga cti vi ti es
Ca s hfl ows fromfi na nci nga cti vi ti es :
Ta xBenefi t(Shortfa l l )fromSha reBa s edpa yments
Proceeds fromi s s ua nceofs eni ornotes ,net
Proceeds fromthei s s ua nceofSeni orConverti bl eNotes
Redempti onPremi umontheReti rementofDebt
Repurcha s eofcommons tock
Pa yments forPubl i cOfferi ngs ofCommonStock
Pa ymentforpurcha s eofconverti bl enotehedge
Proceeds froms a l eofcommons tockwa rra nts
Repa ymentofs eni ornotes
Deferredfi na nci ngcos ts
Netca s hproceeds froms ha res i s s ued
Netca s hus edi nfi na nci nga cti vi ti es
Effectofexcha ngera techa nges onca s h
Netca s hprovi dedbydi s conti nuedopera ti ons
Neti ncrea s e(decrea s e)i nca s h
Ca s ha ndca s hequi va l ents a tbegi nni ngofperi od
Ca s ha ndca s hequi va l ents a tendofperi od
Suppl ementa l ca s hfl owi nforma ti on:
Interes tpa i d
Incometa xes pa i d
Opera ti ngca s hfl owpers ha re
excl udi ngcha nges i nworki ngca pi ta l
Opera ti ngca s hfl owpers ha re
i ncl udi ngcha nges i nworki ngca pi ta l
Inthous a nds
AnnualandQuarterlyStatementsofCashFlows
2012A
71,301
44,149
10,324
282
50,440
8,154
(822)
$87,907
2014A
19,984
7,486
1,972
(660)
21,450
2,444
(33,056)
$35,853
31Ma rA
20,172
6,314
2,802
(260)
11,085
2,406
30SepA
20,958
6,392
3,183
223
8,981
2,417
(11,004)
$14,424
2015E
$19,215
30JunA
2,387
(209)
2,504
970
14,303
$18,301
31DecE
75,417
20,192
10,344
(906)
44,020
8,237
(44,060)
$87,793
2015E
2,387
(187)
9,186
970
14,377
$9,329
31Ma rE
2,387
(193)
8,556
970
14,422
30SepE
2,387
(190)
8,091
970
14,468
$9,669
2016E
$10,133
30JunE
2,387
(204)
7,552
970
14,513
$11,625
31DecE
9,548
(774)
33,385
3,879
57,780
$40,756
2016E
November12,2015
$4.51
$1.72
$1.72
36
$2.05
$2.17
$1.39
$1.38
$1.00
$1.22
8,244
$6.13
$6.47
$4.90
167
$5.77
14,032
11,240
(13) 9
$6.12
(2,089)
1,966
(123)
(3,120)
$3.65
292
$3.09
25,272
8,407
(17,658)
4,501
450,000
30,733
1,927
57,869
47,352
(14,220) 4,000
122,091
185,123
307,214
375,000
300,000
(3,692)
(25,000)
(180)
(73,032)
48,237
(300,000) (500,000)
(16,186)
(7,807)
(1,953)
(44)
(92)
4,244
9,620
5,044
1,966
334,391 (61,344) (19,664) (1,953) 1,922 (92)
(179)
(537)
(107)
(302)
48
(2,866)
12,075
244,057
4,012
219,829 (137,387) (254,168) 94,335 (16,053) 39,213 4,596
356,849
576,678
439,291
185,123
279,458
263,405
302,618
576,678
439,291
185,123
279,458
263,405
302,618
307,214
9,498
314,834
324,332
9,554
324,332
333,886
9,014
333,886
342,901
35,686
307,214
342,901
$0.82
$0.91
$0.88
$0.87
$0.88
$0.89
$0.86
$0.83
$3.44
$3.49
(3,707) (2,605) (2,412) (725) (9,449)
7,620
307,214
314,834
(240,526)
(465,165)
(343,989)
(52,617)
(66,715)
(33,083)
(20,900)
(173,315)
(13,725)
(13,725)
(13,725)
(13,725)
(54,900)
3,002
16,021
7,178
114,000
38,000
152,000
(14,549)
(73,593)
(55,089)
(21,843)
(14,402)
(11,215)
(8,400)
(55,860)
(7,275)
(7,275)
(7,275)
(7,275)
(29,100)
(3,250)
(3,893)
(9,615)
(4,388)
(10,217)
(1,250)
(1,900)
(17,755)
(1,000)
(1,000)
(1,000)
(1,000)
(4,000)
(255,323) (526,630) (401,515) 35,152 (91,334) (7,548) (31,200) (94,930) (22,000) (22,000) (22,000) (22,000) (88,000)
55,332
30,630
11,888
383
32,320
16,826
(1,587)
25,776
$64,078
2013A
(18,830)
9,793
(38,500)
19,704
6,757
18,449
2,966
47,876
7,203
(1,295)
2,244
(5,293)
2,859
(110)
8,956
(8,393)
(4,422)
5,576
31
1,185
(39,211)
(35,875)
(43,609)
(2,553)
(3,756)
(5,725)
(3,750)
(15,784)
(4,575)
(4,575)
(4,575)
(4,575)
(18,300)
2,230
1,073
(4,146)
(6,767)
7,207
(8,711)
6,288
(1,983)
(6,005)
724
(999)
2,674
(3,606)
14,043
(12,626)
(13,981)
1,403
(5,603)
1,396
(7,963)
(10,767)
(3,065)
369
(510)
1,365
(1,840)
5,835
100
(1,400)
1,396
(1,295)
(1,299)
128,865 207,067 163,106 61,438 73,311 49,719 35,796 220,264 29,620 31,498 31,554 31,014 123,686
52,005
21,670
10,805
1,775
20,368
17,192
350
6,048
$34,695
1.26
1.03
0.96
0.73
1.97
1.60
0.56
0.51
51.12%
25.39%
1.41%
3.31%
7.99%
40.50%
7.85%
Profi ta bi l i ty/Va l ua ti onMea s ures

Gros s profi tma rgi n
Opera ti ngprofi tma rgi n
Returnona s s ets
Returnonequi ty
Ea rni ngs beforei nteres ta ndta xes ma rgi n
EBITDAma rgi n
EBITDA/As s ets
2.13
1.98
1.98
0.38
388,004
4.78
0.94
0.28
0.19
81
92
2012A
Fi na nci a l Ri s k(Levera ge)Ra ti os

Tota l debt/equi tyra ti o
Debt/equi tyra ti o(excl udi ngdeferredta xes )
Tota l LTdebt/equi tyra ti o
LTdebt/equi ty(excl udi ngdeferredta xes )
Interes tcovera gera ti o(Ea rni ngs =EBIT)
Interes tcovera gera ti o(Ea rni ngs =EBI)
Tota l debtra ti o
Debtra ti o(excudi ngdeferredta xes )
Li qui di tymea s ures

Currentra ti o
Qui ckra ti o
Ca s hra ti o
Ca s hfl owfromopera ti ons ra ti o
Worki ngca pi ta l
Producti vi tyRa ti os
Recei va bl es turnover
Worki ngca pi ta l turnover
Netfi xeda s s etturnover
Tota l a s s etturnover
#ofda ys Sa l es i nA/R
#ofda ys ca s hba s edexpens es i npa ya bl es
Ratios
56.35%
31.21%
4.08%
9.05%
20.32%
42.64%
8.55%
1.19
0.90
1.11
0.83
3.12
2.35
0.54
0.47
6.10
5.24
5.24
2.04
518,959
5.57
1.21
0.38
0.20
62
97
2013A
53.29%
26.69%
3.08%
6.64%
13.95%
45.13%
9.95%
1.13
0.85
1.07
0.79
5.56
3.86
0.53
0.46
4.60
3.81
3.81
1.96
299,097
5.66
1.55
0.32
0.22
75
69
2014A
37
54.38%
49.69%
1.22%
2.58%
26.63%
70.58%
3.22%
1.11
0.83
1.05
0.77
6.58
4.49
0.53
0.45
5.73
4.66
4.66
0.73
396,349
1.11
0.39
0.06
0.05
75
85
31Ma rA
57.83%
28.84%
0.64%
1.35%
14.08%
48.90%
2.23%
1.11
0.82
1.04
0.75
4.06
2.94
0.53
0.45
4.54
3.78
3.78
0.75
344,762
1.26
0.37
0.07
0.05
70
106
52.75%
28.22%
0.48%
1.00%
12.40%
52.14%
2.02%
1.07
0.80
1.02
0.75
3.43
2.49
0.52
0.45
5.08
4.82
4.82
0.62
329,497
1.21
0.34
0.06
0.04
68
91
2015E
30JunA
30SepA
50.00%
37.00%
0.61%
1.26%
16.64%
50.18%
1.83%
1.06
0.79
1.01
0.74
3.45
2.54
0.51
0.44
5.22
4.95
4.95
0.45
333,340
1.29
0.33
0.06
0.04
70
90
31DecE
53.98%
36.14%
2.95%
6.19%
17.65%
55.81%
9.34%
1.06
0.79
1.01
0.74
4.36
3.10
0.51
0.44
5.22
4.95
4.95
2.79
333,340
4.63
1.57
0.20
0.17
61
85
2015E
53.59%
29.01%
0.31%
0.63%
9.46%
43.90%
1.43%
1.05
0.78
1.00
0.73
2.05
1.66
0.51
0.44
5.90
5.60
5.60
0.42
343,014
1.23
0.29
0.04
0.03
70
90
31Ma rE
53.59%
29.40%
0.33%
0.68%
9.97%
43.89%
1.47%
1.05
0.77
1.00
0.73
2.14
1.72
0.51
0.44
5.97
5.67
5.67
0.44
352,907
1.31
0.29
0.05
0.03
70
90
53.59%
29.13%
0.32%
0.65%
9.67%
43.90%
1.43%
1.04
0.77
1.00
0.72
2.09
1.69
0.51
0.43
6.21
5.90
5.90
0.45
361,916
1.30
0.28
0.05
0.03
70
90
2016E
30JunE
30SepE
53.59%
30.06%
0.38%
0.77%
10.84%
43.88%
1.53%
1.04
0.76
0.99
0.71
2.31
1.82
0.51
0.43
6.06
5.77
5.77
0.42
372,388
1.36
0.29
0.05
0.03
70
90
31DecE
53.59%
29.41%
1.33%
2.73%
10.00%
43.89%
5.85%
1.04
0.76
0.99
0.71
2.15
1.72
0.51
0.43
6.06
5.77
5.77
1.68
372,388
4.93
1.15
0.16
0.13
73
94
2016E
November12,2015
THISPAGELEFTINTENTIONALLYBLANK
BURKENROADREPORTSRATINGSYSTEM
MARKETOUTPERFORM:Thisratingindicatesthatwebelieveforcesareinplacethatwouldenablethis
company'sstocktoproducereturnsinexcessofthestockmarketaveragesoverthenext12months.
MARKETPERFORM:Thisratingindicatesthatwebelievetheinvestmentreturnsfromthiscompany'sstock
willbeinlinewiththoseproducedbythestockmarketaveragesoverthenext12months.
MARKETUNDERPERFORM:Thisratingindicatesthatwhilethisinvestmentmayhavepositiveattributes,we
believeaninvestmentinthiscompanywillproducesubparreturnsoverthenext12months.
BURKENROADREPORTSCALCULATIONS
CPFSiscalculatedusingoperatingcashflowsexcludingworkingcapitalchanges.
AllamountsareasofthedateofthereportasreportedbyBloombergorYahooFinanceunless
otherwisenoted.BetasarecollectedfromBloomberg.
Enterprisevalueisbasedontheequitymarketcapasofthereportdate,adjustedforlongterm
debt,cash,&shortterminvestmentsreportedonthemostrecentquarterlyreportdate.
12monthStockPerformanceiscalculatedusinganendingpriceasofthereportdate.
Thestockperformanceincludesthe12monthdividendyield.
20152016COVERAGEUNIVERSE
AmerisafeInc.(AMSF)
MarineProductsCorp.(MPX)
BristowGroupInc.(BRS)
MidSouthBancorpInc.(MSL)
CalIonPetroleumCompany(CPE)
NewparkResourcesInc.(NR)
CalMaineFoodsInc.(CALM)
PetroQuestEnergyInc.(PQ)
CarboCeramicsInc.(CRR)
PoolCorporation(POOL)
CashAmericaInternationalInc.(CSH)
PowellIndustriesInc.(POWL)
Conn'sInc.(CONN)
RollinsIncorporated(ROL)
CrownCraftsInc.(CRWS)
RPCIncorporated(RES)
DenburyResourcesInc.(DNR)
RuthsHospitalityGroupInc.(RUTH)
SandersonFarmsInc.(SAFM)
EastGroupPropertiesInc.(EGP)
SEACORHoldingsInc.(CKH)
EraGroupInc.(ERA)
SharpsComplianceInc.(SMED)
EvolutionPetroleumCorp.(EPM)
SparkEnergyInc.(SPKE)
TheFirstBancshares(FBMS)
Globalstar(GSAT)
StoneEnergyCorp.(SGY)
GulfIslandFabricationInc.(GIFI)
SunocoLP(SUN)
HibbettSports(HIBB)
SuperiorEnergyServicesInc.(SPN)
HornbeckOffshoreServicesInc.(HOS)
SuperiorUniformGroupInc.(SGC)
IBERIABANKCorp.(IBKC)
TeamIncorporated(TISI)
IONGeophysicalCorp.(IO)
VaalcoEnergyInc.(EGY)
KeyEnergyServices(KEG)
WillbrosGroupInc.(WG)
DANIELBROWNFIELD
PETERRICCHIUTI
BURKENROADREPORTS
DirectorofResearch
GRACECAMMACK
TulaneUniversity
ALANPOSNER
FounderofBurkenroadReports
NewOrleans,LA701185669
Peter.Ricchiuti@tulane.edu
RUBENFLORESDELGADO
(504)8628489
AssociateDirectorsofResearch
(504)8655430Fax
ANTHONYWOOD
SeniorDirectorofAccounting
Awood11@tulane.edu
Named in honor of William B. Burkenroad Jr., an alumnus and a longtime supporter

of Tulanes business school, and funded through contributions from his family and
friends, BURKENROAD REPORTS is a nationally recognized program, publishing
objective, investment research reports on public companies in our region. Students
at Tulane Universitys Freeman School of Business prepare these reports.
Alumni of the BURKENROAD REPORTS program are employed at a number of
highly respected financial institutions including:
ABN AMRO Bank Aegis Value Fund Invesco/AIM Capital Management Alpha
Omega Capital Partners American General Investment Management Ameriprise
Financial Atlas Capital Banc of America Securities Bank of Montreal
Bancomer Barclays Capital Barings PLC Bearing Point Bessemer Trust
Black Gold Capital Bloomberg Brookfield Asset Management Brown Brothers
Harriman Capital Blackrock Financial Management Boston Consulting Group
Buckingham Research California Board of Regents Cambridge Associates
Canaccord Genuity Cantor Fitzgerald Chaffe & Associates Citadel Investment
Group Citibank Citigroup Private Bank City National Bank Cornerstone
Resources Credit Suisse D. A. Davidson & Co. Deutsche Banc Duquesne
Capital Management Equitas Capital Advisors Factset Research Financial
Models First Albany Fiduciary Trust Fitch Investors Services Forex Trading
Franklin Templeton Friedman Billings Ramsay Fulcrum Global Partners
Gintel Asset Management Global Hunter Securities Goldman Sachs Grosever
Funds Gruntal & Co. Guggenheim Securities , LLC Hancock Investment
Services Healthcare Markets Group Capital One Southcoast Howard Weil
Labouisse Friedrichs IBERIABANK Capital Markets J.P. Morgan Securities
Janney Montgomery Scott Jefferies & Co. Johnson Rice & Co. KBC
Financial KDI Capital Partners Key Investments Keystone Investments
Legacy Capital Liberty Mutual Lowenhaupt Global Advisors Mackay Shields
Manulife/John Hancock Investments Marsh & McLennan Mercer Partners
Merrill Lynch Miramar Asset Management Moodys Investor Services
Morgan Keegan Morgan Stanley New York Stock Exchange Perkins Wolf
McDonnell Piper Jaffray & Co. Professional Advisory Services Quarterdeck
Investment Services RBC Raymond James Restoration Capital Rice Voelker,
LLC Royal Bank of Scotland Sandler O'Neill & Partners Sanford Bernstein
& Co. Scotia Capital Scottrade Second City Trading LLC Sequent Energy
Sidoti & Co Simmons & Co. Southwest Securities Stephens & Co. Sterne
Agee Stewart Capital LLC Stifel Nicolaus Sun-Trust Capital Markets
Susquehanna Investment Group Thomas Weisel Partners TD Waterhouse
Securities Texas Employee Retirement System Texas Teachers Retirement
System ThirtyNorth Investments Thornburg Investment Management Tivoli
Partners Tudor Pickering & Co. Tulane University Endowment Fund Turner
Investment Partners UBS Value Line Investments Vaughan Nelson Investment
Management Wells Fargo Capital Management Whitney National Bank
William Blair & Co. Zephyr Management
To receive complete reports on any of the companies we follow, contact:
Peter Ricchiuti, Founder & Director of Research
Tulane University
Freeman School of Business
BURKENROAD REPORTS
Phone: (504) 862-8489
Fax: (504) 865-5430
E-mail: Peter.Ricchiuti@Tulane.edu
Please visit our web site at www.BURKENROAD.org
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November12,2015

Wall Street's Farm Team

(13.91) 6/30/2015 InvestmentFund

ANOTHER WAY TO LOOK AT IT

Ea rni ngs pers ha re:

Di l utedea rni ngs pers ha refromconti nui ngopera ti ons

Ca s hFl owFromOpera ti ons :

(3,707) (2,605) (2,412) (725) (9,449)

Profi ta bi l i ty/Va l ua ti onMea s ures

Fi na nci a l Ri s k(Levera ge)Ra ti os

Li qui di tymea s ures

Named in honor of William B. Burkenroad Jr., an alumnus and a longtime supporter

Printed on Recycled Paper

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