GulfMark Offshore, Inc. (GLF) yesterday announced its results of operations for the three- and nine-month periods ended Sept. 30, 2014. For the quarter ended Sept. 30, 2014, revenue was $128.7 million, and net income was $24.3 million, or $0.92 per diluted share. Included in the quarterly results were three special items, discussed further below, that totaled $0.17 per diluted share. Earnings before these special items were $0.75 per diluted share.
"The global offshore vessel market flattened in the third quarter as fewer offshore drilling rigs were utilized than anticipated, and as oil producing companies continued their focus on reducing costs." said Quintin Kneen, president and CEO. "These factors resulted in generally favorable, but slower than anticipated markets in the U.S. Gulf of Mexico and the North Sea. In contrast, the Southeast Asia market remained challenged as national oil companies in the region have been slow to award new contracts, compounded by an increasing supply of offshore vessels in that region.
"We remain focused on the creation of long-term value, and throughout the year we have taken steps to improve our financial flexibility, high-grade our fleet and enhance the return for our stockholders.
"We recently took advantage of a favorable bank market to renegotiate our main revolving credit facility. As a result, we doubled our domestic borrowing capacity while decreasing overall borrowing costs.
"Our total vessel count has remained stable, but by the end of this year we will have delivered three new vessels, purchased one 2012-built vessel and had four of our existing vessels enhanced through our vessel stretch program. So far this year we have sold two older vessels, and we have contracts to sell two more vessels before year-end. As a result, even though our total vessel count is not increasing, the quality of the vessels in our fleet is rising, as confirmed by our increasing average day rate.
"As of today, we have less than $90 million of payments remaining on the four vessels in our new build program. We continue to seek opportunities to further high-grade the fleet, but believe that one of the best investments for us today is the repurchase of our own stock.
"Although we pride ourselves on our excellence in operating vessels, the cyclical nature of our industry presents us opportunities to maximize stockholder value through the repurchase of our own stock. We have been making open market purchases of our stock and continue to do so under a 10b5-1 arrangement. Since June 30, we have repurchased 758,686 shares at an average price of $32.16 per share. In addition, we are committed to our current dividend policy and the current market sentiment and outlook does not change this commitment.
"Based on our results for the third quarter and our outlook through the end of 2014, we are revising our annual revenue guidance to be between $490 and $495 million for the full-year 2014, and to be between $110 and $115 million for the upcoming fourth quarter.
"There is a strong sentiment within the market that worldwide utilization in the offshore supply vessel industry will decrease in 2015, and although we will give updated and more complete guidance for 2015 next quarter, our initial expectations for 2015 indicate that full-year revenue will be between $480 and $530 million.
"Although momentum in the market seems to be slowing, we remain committed to our stockholders, customers and employees. Our thanks go out to all of our offshore and onshore employees, who are some of the most respected maritime professionals in the world, for their commitment to differentiating GulfMark in the eyes of our customers through the safe, efficient and reliable operation of our high-specification offshore support vessels."
Consolidated Third-Quarter Results
Consolidated revenue for the third quarter of 2014 was $128.7 million, compared with $131.4 million in the second quarter. Consolidated revenue shifted from a 4% sequential increase in average day rate to $22,587 from $21,763 in the previous quarter, partially offset by a five percentage point decline in average quarterly utilization to 83% from 88% in the second quarter. Consolidated operating income increased to $34.8 million. Excluding special items in both quarters, consolidated operating income sequentially declined to $27.9 million from $32.8 million in the second quarter due to lower revenue and slightly higher operating costs.
Special items in this quarter's results included a gain on the sale of vessels of $5.5 million ($0.21 per diluted share), a $1.4 million cash collection ($0.03 per diluted share) related to a disbursement from the estate of a shipyard that went into bankruptcy in 2009, and a non-cash foreign exchange loss of $1.9 million ($0.07 per diluted share). The special items included in the prior quarter included a non-cash charge of $7.5 million ($0.28 per diluted share) for an impairment on the value of aging spare parts inventory, and a $2.4 million charge ($0.09 per diluted share) related to an allowance for an uncollectible receivable.
Regional Results for the Third Quarter
In the North Sea region, third quarter revenue was $61.8 million compared with $58.3 million in the second quarter. This is an increase of $3.5 million, or 6%, from the second quarter. The average day rate increased to $23,974 from $23,271 in the second quarter. Utilization strengthened by two percentage points over the second quarter. The higher day rate and utilization combined with more operating days to increase revenue.
Revenue in the Southeast Asia region was $13.9 million compared with $17.4 million in the second quarter. The change in revenue was due to a 14 percentage point utilization decline, as well as the effects of selling vessels in the region. The average day rate remained flat.
Third quarter revenue for the Americas region was $53.0 million compared with $55.7 million in the previous quarter. Average day rate increased 3% from the prior quarter due to an improvement in fleet mix. Utilization materially decreased nine percentage points to 83% from 92% in the second quarter due to a weaker than expected spot market and 27 more drydock days.
Consolidated Operating Expenses for the Third Quarter
Direct operating expenses for the third quarter were $62.2 million, an increase of $2.5 million, or 4%, from the second quarter. The increase was due mainly to higher repairs and maintenance expenses and higher fuel cost resulting from relocating four vessels within Southeast Asia and increased standby consumption caused by more off-hire days. Drydock expense in the third quarter was $4.4 million, $3.6 million less than our previous guidance of $8.0 million. General and administrative expense was $15.0 million for the third quarter, in line with our 2014 quarterly run rate.
Liquidity and Capital Commitments
Cash provided by operating activities totaled $55.8 million in the third quarter. Cash on hand at September 30, 2014, was $32.7 million, and $18.2 million was drawn on the revolving credit facilities. Total debt at September 30, 2014, was $519.0 million, and debt net of cash was $486.3 million.
Capital expenditures during the third quarter totaled $20.9 million, which included $7.7 million of payments on the construction of new vessels and $13.2 million for vessel enhancements and other capital expenditures. As of September 30, 2014, the Company had approximately $87.5 million of remaining capital commitments related to the construction of four vessels.Anticipated progress payments over the next two calendar years are as follows: $19.3 million in 2014 and $68.2 million in 2015. The Company expects to fund these commitments from cash on hand, cash generated by operations and borrowings under the revolving credit facilities.
