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Gulfmark 2Q Revenue at $74.5 Million; Credits North Sea Activity

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GulfMark Offshore, Inc. announced its results of operations for the three- and six-month periods ended June 30, 2015.

Recent highlights include:

• Exceeded Expectations for Revenue and Operating Expense Reductions
• Direct Operating Expenses Decreased 23% Since the Same Quarter Last Year
• General and Administrative Expenses, Before Special Items, Decreased 23% Since the Same Quarter Last Year
• Recent Sale of 1997-Built North Sea Vessel for Approximately 110% of Book Value
• Direct Operating Expenses Estimated to Decrease Approximately 10% From Q2 to Q3 2015
• Remaining Capital Commitments are Less Than Cash on Hand
• Amended Revolving Credit Facilities and Reduced Debt Covenant Requirements. Total Liquidity was Approximately $290 Million at July 22, 2015

For the second quarter ended June 30, 2015, revenue was $74.5 million, and net loss was $8.2 million, or $0.33 per diluted share. Included in the results are workforce redundancy charges that total $0.06 per diluted share. Quarterly loss before this special item was $0.27 per diluted share.

Quintin Kneen, President and CEO, commented, "We are pleased with the progress we have made on several fronts. Our North Sea region is benefiting from its strong franchise position in the area and has done extremely well for a difficult market. Our North Sea utilization outperformed the broader market by six percentage points, and we exceeded the broader market term day rate by approximately 12%. Also, subsequent to quarter end, we sold one of our oldest vessels for a gain, and we continue to make progress in divesting older tonnage.

"Consolidated revenue was at the high end of our guidance and operating costs came in well below our guidance, positioning us to improve positive quarterly cash flow from operations. Our expense reduction initiatives continue to yield better than anticipated savings. We now believe that we will be able to capture about $60 million of annual direct operating expense savings, an additional $25 million in savings over our previous goal of about $35 million. We successfully renegotiated our revolving credit facilities and are pleased with the support our banks have shown us. We are confident that the amendment should provide us with the necessary liquidity and flexibility to navigate the Company through the current downturn.

"We are pleased with our accomplishments thus far and are optimistic about the future. We are cognizant of the near-term challenges this industry faces, but our relationships with key customers remain as strong as ever. We will continue to focus on opportunistically selling vessels, reducing operating costs and maintaining capital discipline, which allows us to maximize cash flow, maintain liquidity and improve long-term operational efficiencies."

Consolidated Second-Quarter Results

Consolidated revenue for the second quarter of 2015 was $74.5 million, compared with $89.1 million in the first quarter. Consolidated revenue fell due to a 9% sequential decrease in average day rate to $16,428 from $17,961 in the previous quarter, while utilization fell to 69% from 77% in the first quarter. Consolidated operating loss was $4.2 million, compared with $0.6 million in the first quarter. Excluding special items in both quarters, consolidated operating income sequentially declined to a loss of $2.7 million from a loss of $0.2 million in the first quarter, due to lower revenue offset by lower operating and general and administrative costs.

This quarter includes one special item for a total of $1.5 million net of tax ($0.06 per diluted share) relating to workforce redundancy charges in the North Sea and Americas regions.

Regional Results for the Second Quarter

In the North Sea region, second-quarter revenue was $36.6 million, compared with $40.2 million in the first quarter. The average day rate fell 7% to $17,110 from $18,353 in the first quarter which was the primary reason for the decrease in revenue. Utilization remained relatively flat from the prior quarter, and the Company's utilization in the North Sea, exclusive of stacked vessels, was 89% during the second quarter. GulfMark currently has three vessels stacked in the North Sea.

Second-quarter revenue in the Southeast Asia region was $11.0 million, compared with $13.3 million in the first quarter. The change in revenue was due to a decline in average day rate of 15% to $11,817 from $13,880 in the first quarter combined with a 15 percentage point utilization decline. The Company has no vessels currently stacked in Southeast Asia.

Second-quarter revenue for the Americas region was $26.9 million, compared with $35.6 million in the previous quarter. Average day rate decreased 9% from the prior quarter due to the continued softening in the market. Utilization decreased 12 percentage points to 55% from 67% in the first quarter, due to the continued weakness in the spot market and the effect of stacking several vessels in the U.S. Gulf of Mexico. The Company's utilization in the Americas, exclusive of stacked vessels, was 76% during the second quarter. GulfMark currently has six vessels stacked in the Americas.

Consolidated Operating Expenses for the Second Quarter

Direct operating expenses for the second quarter were $45.9 million including the workforce redundancy charges. This is a decrease of $5.3 million, or 10%, from the first quarter. The decrease was due mainly to lower labor costs related to stacking vessels and wage reductions in the Americas region, combined with lower fuel expense, offset by higher workforce redundancy charges. Drydock expense in the second quarter was $2.4 million, down from $9.0 million in the first quarter and below the Company's previous guidance. General and administrative expense was $11.5 million for the second quarter, about $0.5 million lower than the Company's guided quarterly run rate. Tax benefit during the quarter was $4.1 million, or 33% of pretax income.

Guidance

Looking forward, the Company expects revenue in the third quarter to be between $65 and $70 million. GulfMark expects fleet-wide utilization to be between 65% and 70% for the third quarter, and expects its global average day rate for the third quarter to decrease by approximately 5-10% sequentially. Due to its expense reduction initiatives, GulfMark now anticipates third quarter direct operating expenses to be between $39 million and $41 million and for full year direct operating expenses to be between $175 and $180 million, an additional reduction of approximately $25 million from the previous target. The Company expects general and administrative expense to be between $11 million and $12 million in the third quarter and drydock to be between $4 million and $5 million. Full-year drydock is expected to be between $15 million and $17 million.

Liquidity and Capital Commitments

Cash provided by operating activities totaled $14.8 million in the second quarter. Cash on hand at June 30, 2015, was $78.4 million, and $72.0 million was drawn on the revolving credit facilities. Total debt at June 30, 2015, was $572.7 million, and debt net of cash was $494.3 million. Net debt to book capital was 32% at the end of the quarter, and following the amendments of the credit facilities and including the proceeds from the recent vessel sale, total liquidity (cash plus available revolver) was approximately $290 million at July 22.

Net capital expenditures during the second quarter totaled $9.7 million, which included $7.2 million of payments on the construction of new vessels and $2.5 million for vessel enhancements and other capital expenditures. As of June 30, 2015, the Company had approximately $70.0 million of remaining capital commitments related to the construction of three vessels. Anticipated progress payments over the next two calendar years are as follows: $21.0 million in 2015 and $49.0 million in 2016. The Company expects to fund these commitments from cash on hand, cash generated by operations, and borrowings under the revolving credit facilities.

After the end of the second quarter, GulfMark amended its revolving credit facilities in order to decrease interest coverage requirements. The total committed amount of the Norwegian facility is NOK 600 million and total committed amount of the U.S. facility is $200 million.