HORNBECK OFFSHORE SERVICES : LA Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

The following Management's Discussion and Analysis of Financial Condition and
Results of Operations should be read together with our unaudited consolidated
financial statements and notes to unaudited consolidated financial statements in
this Quarterly Report on Form 10-Q and our audited financial statements and
notes thereto included in our Annual Report on Form 10-K as of and for the year
ended December 31, 2019. This discussion contains forward-looking statements
that reflect our current views with respect to future events and financial
performance. Our actual results may differ materially from those anticipated in
these forward-looking statements. See "Forward Looking Statements" for
additional discussion regarding risks associated with forward-looking
statements. In this Quarterly Report on Form 10-Q, "company," "we," "us," "our"
or like terms refer to Hornbeck Offshore Services, Inc. and its subsidiaries,
except as otherwise indicated. Please refer to Item 5-Other Information for a
glossary of terms used throughout this Quarterly Report on Form 10-Q.
In this Quarterly Report on Form 10-Q, we rely on and refer to information
regarding our industry from the BOEM, EIA and IHS-Petrodata, Inc. These
organizations are not affiliated with us and are not aware of and have not
consented to being named in this Quarterly Report on Form 10-Q. We believe this
information is reliable. In addition, in many cases we have made statements in
this Quarterly Report on Form 10-Q regarding our industry and our position in
the industry based on our experience in the industry and our own evaluation of
market conditions.
General
During the first quarter of 2020, volatility in oil prices continued as WTI and
Brent prices ranged from $15 to $70 per barrel. While we had expected generally
improved market conditions to take hold during 2020, the outbreak and ensuing
global pandemic related to COVID-19 silenced those expectations. A global
decline in demand for oil resulting from COVID-19 economic closures combined
with a temporary but significant increase in production and the related oil
price war initiated by Saudi Arabia and Russia following the COVID-19 outbreak
conspired to cause a collapse in oil prices during April 2020 that was
unprecedented. While oil prices have recovered somewhat since then, there
remains a significant overhang in supply and lingering weak demand on a global
basis. The recent decrease in oil prices caused major, international and
independent oil companies with deepwater operations to significantly reduce
their offshore capital spending budgets for the worldwide exploration or
production of oil and gas, prolonging the industry downturn that has prevailed
since late 2014. Reduced spending by our customers combined with the already
global oversupply of OSVs, including high-spec OSVs in our core markets,
resulted in significant reductions in our dayrates and utilization. These
factors ultimately resulted in our determination to seek bankruptcy protection
on May 19, 2020. The principal question facing the offshore oilfield industry is
the remaining duration of the current downturn in offshore activities. The
lingering effects of the COVID-19 pandemic are expected to continue to depress
demand and the timing of a global economic recovery is unclear. In addition,
there can be no assurance regarding the production levels of oil and gas by
Russia, Saudi Arabia, and other oil producing countries and, therefore, the
price of oil.

On May 19, 2020, we sought voluntary relief under chapter 11 of the United
States Bankruptcy Code, or the Chapter 11 Cases in the U.S. Bankruptcy Court for
the Southern District of Texas, Houston Division and filed a proposed joint
prepackaged plan of reorganization, or the Plan. On June 19, 2020, after a
confirmation hearing, the Bankruptcy Court entered a confirmation order
approving the Plan. The Plan will become effective after the conditions to its
effectiveness have been satisfied. The effect of the Plan is to de-lever our
balance sheet through a conversion into equity or warrants or both of (i) a
portion of the $350 million in first-lien term loans that mature in June 2023;
(ii) $121 million in second-lien term loans that mature in February 2025; (iii)
$224 million outstanding under our 2020 senior notes indenture, and; (iv) $450
million outstanding under our 2021 senior notes indenture. The holders of
first-lien term loans will also receive their pro rata portion of the

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new second-lien term loans issued upon emergence as part of the Exit Financings.
All pre-petition equity interests in the Company will be canceled, released, and
extinguished on the effective date of the Plan, and will thereafter be of no
further force or effect. See Note 2 of our consolidated financial statements
included herein for further discussion.

In late 2019, we observed leading indicators that signaled the potential for
improved conditions -- including larger offshore capital budget announcements by
our customers, a growth in the number of final investment decisions, or FIDs,
made public by our customers for offshore projects, recently announced deepwater
discoveries, a growing contract backlog announced by several drilling
contractors and increased customer inquiries for our services, principally in
the Greater GoM Operating Region. Most of these plans have not proceeded as
anticipated in 2020. We now expect some to be cancelled altogether while others
are being postponed. The duration of postponement is expected to be determined
by the ability to operate during the COVID-19 pandemic and oil price recovery.
We have experienced multiple charter cancellations and non-renewals.
During the first quarter of 2020, we did not observe any significant change in
the anticipated supply of high-spec U.S.-flagged OSVs. In the U.S. GoM, two
high-spec OSVs were delivered by industry participants into the domestic market
so far this year. We expect two additional high-spec OSVs to be delivered by
industry participants into domestic service during the remainder of 2020. There
were three high-spec, Jones-Act qualified OSVs under construction by industry
participants on June 30, 2020 and as of that date there were no options to build
additional high-spec Jones-Act qualified OSVs. We do not anticipate significant
growth in the supply of high-spec U.S.-flagged OSVs beyond the currently
anticipated level of 178 of such vessels by the end of 2020. We continue to
monitor the overhang of the dormant supply of stacked U.S.-flagged high-spec
OSVs. There are approximately 95 stacked domestic vessels and all of these
vessels will require intermediate or special surveys in order to return to
service. We believe that the cost to industry participants to reactivate
high-spec OSVs, including survey costs, crewing costs, training costs and
unanticipated events, will range between $2 million and $5 million per vessel,
on average. During the first half of 2020, we have observed an additional 23
high-spec OSVs go into stack, including six of our own.
During the first quarter of 2020, there was an average of 28.7 floating rigs
working in the Greater GoM Operating Region. We believe that the number of
active drilling units in the Greater GoM Operating Region will decline in 2020.
As of June 30, 2020, there were 26 rigs available and 20 were working. During
the second half of 2020, we expect that the active floating rig count could drop
to as low as 10 to 15.

Unlike our OSVs, whose utilization is tied principally to drilling activities,
demand for our MPSVs is also driven by other types of offshore activities. These
vessels are used for a wide variety of oilfield applications that are not
necessarily related to drilling. Because of the need to continuously inspect,
repair and maintain offshore infrastructure, our MPSVs have, at times, partially
counter-acted weakness in overall drilling activities. However, we have not yet
seen a significant pick up in the expansion of offshore infrastructure, such as
the installation of new floating and subsea infrastructure and field development
that more meaningfully drive MPSV utilization. Project cancellations and delays
have driven extremely weak utilization for our MPSVs during 2020. While peak
activity normally occurs in late spring through early fall, we see little
evidence that MPSV utilization will improve seasonally during 2020.
Since October 1, 2014, we stacked OSVs and MPSVs on various dates. As of
March 31, 2020, we had 36 OSVs and one MPSV stacked. As of June 30, 2020, we had
44 OSVs and two MPSVs stacked and such stacked vessels represent 62% of our
fleetwide vessel headcount, and 49% of our total OSV and MPSV deadweight
tonnage. We reactivated one MPSV during the first quarter of 2020. We may
consider stacking additional vessels or reactivating vessels as market
conditions warrant. By stacking vessels, we have significantly reduced our
on-going cash outlays and lowered our risk profile; however, we also have fewer
revenue-producing units in service that can contribute to our results and
produce cash flows to cover our fixed costs and commitments. While we may choose
to stack additional vessels should market conditions warrant,

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our current expectation is to retain our active fleet in the market to accept
contracts at the best available terms even if such contracts are below our
breakeven cash cost of operations.
Mexico and Brazil continue to comprise our two core international markets. In
order to support customer requirements in Mexico, and based on our long-term
view that Mexico will continue to invest directly or allow foreign investment in
its offshore energy sector, and increasingly in deepwater prospects, we elected
to Mexican-flag five HOSMAX 300 class OSVs, three 280 class OSVs, two 240 class
OSVs and one MPSV since January 1, 2018. At present, our Mexican-flagged fleet
is comprised of ten high-spec OSVs, five low-spec OSVs and one MPSV, which is
the second largest concentration of vessels we have committed to any single
national market. Mexico has undergone significant transformation as a market for
offshore energy over the last several years. IOCs appear to be proceeding with
drilling plans in Mexico despite current industry conditions. While we have
experienced some cancellations from drilling customers in Mexico, most of our
customers appear to be proceeding with their plans. A significant factor
affecting the health of the Mexican offshore market is the weakening financial
condition of Pemex. While we are not currently working for Pemex directly, like
many contractors, we work for customers who are working for Pemex. Offshore
activity driven by Pemex is likely to decline as they have recently announced a
suspension of contracts and have disclosed a significant level of financial
distress that is impacting its ability to pay offshore contractors, many of
which are our customers. We are affected by slow- or non-payment by some of
these customers that have significant Pemex credit risk, thus, we may be
unwilling to work for such customers due to their extensive Pemex exposure.

In Brazil, we presently own and operate one Brazilian-flagged high-spec OSV. We
have flexibility under Brazilian law to import and flag into Brazilian registry
an additional vessel of similar DWT. In 2019, our Vanuatu-flagged MPSV worked as
a flotel in Brazil on an IOC project that ended in the first quarter of 2020.
Brazil is the single largest deepwater market in the world. Recent measures to
expand the role of IOCs in its "pre-salt" prospects are taking hold and we
believe Brazilian activity in the offshore energy space will be a significant
contributor to the overall recovery in global offshore E&P activities.
Our Vessels
All of our current vessels are qualified under the Jones Act to engage in U.S.
coastwise trade, except for 19 foreign-flagged new generation OSVs and two
foreign-flagged MPSVs. As of March 31, 2020, our 30 active new generation OSVs,
seven active MPSVs and four managed OSVs were operating in domestic and
international areas as noted in the following table:
Operating Areas
Domestic
GoM (1)                   22

Other U.S. coastlines (2) 5

                          27
Foreign
Other Latin America        1
Brazil                     1
Mexico                    12
                          14
Total Vessels (3)         41

(1) Includes one owned vessel supporting the military. (2) Includes one owned and four managed vessels supporting the military (3) Excluded from this table are 36 new generation OSVs and one MPSV that were stacked as of March 31, 2020.

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Critical Accounting Estimates
This Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our unaudited consolidated financial statements included in
this Quarterly Report on Form 10-Q. In many cases, the accounting treatment of a
particular transaction is specifically dictated by GAAP. In other circumstances,
we are required to make estimates, judgments and assumptions that we believe are
reasonable based on available information. We base our estimates and judgments
on historical experience and various other factors that we believe are
reasonable based upon the information available. Actual results may differ from
these estimates under different assumptions and conditions. We continually
assess the carrying value of our vessels as discussed below.
Carrying Value of Vessels. We depreciate each of our OSVs and MPSVs over
estimated useful lives of 25 years. Salvage value for our new generation marine
equipment is estimated to be 25% of the originally recorded cost for these asset
types. In assigning depreciable lives to these assets, we have considered the
effects of both physical deterioration largely caused by wear and tear due to
operating use and other economic and regulatory factors that could impact
commercial viability. To date, our experience confirms that these policies are
reasonable, although there may be events or changes in circumstances in the
future that indicate that recovery of the carrying amount of our vessels might
not be possible.
We presently review the carrying values of our vessels for impairment using the
following asset groups: OSVs and MPSVs. We believe that these two vessel groups
are appropriate because our vessels are highly mobile among disparate
geographies and are directed centrally from our headquarters. Our OSVs share
multiple forms of direct and indirect common costs and are marketed on a
portfolio basis as an integrated (multi-vessel) marine solution to our customers
primarily supporting drilling and exploration activities in various deepwater
and ultra-deepwater markets worldwide to our customers. We manage, market,
operate and maintain our vessels in a unified manner because we are performing
the same services to the same client group across the same geographic regions -
i.e., primarily the transportation of the same fungible types of cargo. We
believe that our unified approach to operating the vessels within each group is
among the most important factors and strategic advantages that drive our
customers to utilize our vessels, irrespective of the type or size of vessel
that the customer requires on a given engagement. Therefore, management has
concluded that the lowest level for which identifiable cash flows are largely
independent of the cash flows of other assets and liabilities is at the OSV and
MPSV groupings.
When analyzing asset groups for impairment, we consider both historical and
projected operating cash flows, operating income, and EBITDA based on current
operating environment and future conditions that we can reasonably anticipate,
such as inflation or prospective wage costs. These projections are based on, but
not limited to, job location, current and historical market dayrates included in
recent sales proposals, utilization and contract coverage; along with
anticipated market drivers, such as drilling rig movements, results of offshore
lease sales and discussions with our customers regarding their ongoing drilling
plans.
If events or changes in circumstances as set forth above were to indicate that
the asset group's carrying amount may not be recoverable over the vessels'
useful lives for such groups, we would then be required to estimate the future
undiscounted cash flows expected to result from the use of the asset group and
its eventual disposition. If the sum of the expected future undiscounted cash
flows was determined to be less than the carrying amount of either vessel group,
we would be required to reduce the carrying amount to fair value. Examples of
events or changes in circumstances that could indicate that the recoverability
of the carrying amount of our asset groups should be assessed might include a
significant change in regulations such as OPA 90, a significant decrease in the
market value of the asset group and current period operating or cash flow losses
combined with a history of operating or cash flow losses or a projection or
forecast that demonstrates continuing losses associated with the asset group.

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During the three months ended March 31, 2020, we observed indicators of
impairment related to our vessels. This was due to the rapid decline in the
price of oil, which resulted from COVID-19 closures combined with a significant
increase in production and the oil price war initiated by Saudi Arabia and
Russia. In accordance with GAAP, we calculated the undiscounted cash flows using
a probability weighted forecast for each of our asset groups over their
respective remaining useful lives. Included in the cash flow projections were
assumptions related to the current mix of active and stacked vessels, the
estimated timing of stacked vessels returning to active status along with
projected dayrates, operating expenses and direct overhead expenses related to
each of the groupings. We view vessel stackings as a temporary status and a
prudent business strategy. Stacking vessels does not imply that we have ceased
marketing such vessels, nor is it an indicator that we never intend to
reactivate such vessels when market conditions improve. In fact, we have
unstacked vessels in recent quarters and will continue to do so as warranted.
The total of the undiscounted cash flows was greater than the net book values of
each of our asset groups. Therefore, we concluded that we did not have an
impairment of our long-lived assets as of March 31, 2020, and in such analysis,
we noted a significant cushion for each of our asset groups as a result of the
long remaining useful lives of our vessels.
In the development of the undiscounted cash flows, in addition to the previously
discussed considerations outlined above and in light of current market
conditions, we estimate the length of time it will take for the market to absorb
our stacked vessels such that we can return those vessels to active status. Any
significant revisions to this estimate would have the greatest impact in the
development of the undiscounted cash flows. However, as part of our most recent
analysis, we determined that if we extended the downturn (and, thus, the
unstacking of vessels) by two years from the most recent estimate, this would
reduce our undiscounted cash flows by less than 10%, still providing us with
substantial excess undiscounted cash flow coverage of the assets' net book
values given the length of remaining useful lives for the assets. See Note 6 of
our consolidated financial statements included herein for further discussion. We
will continue to closely monitor market conditions and potential impairment
indicators as long as this market downturn persists.
Our other significant accounting policies and estimates are discussed in Item 7
- Management's Discussion and Analysis of Financial Condition and Results of
Operations and in Note 3 to our consolidated financial statements included in
our Annual Report on Form 10-K for the year ended December 31, 2019.


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Results of Operations
The tables below set forth the average dayrates, utilization rates and effective
dayrates for our owned new generation OSVs and the average number and size of
vessels owned during the periods indicated. These vessels generate a substantial
portion of our revenues and operating profit. Excluded from the OSV information
below are the results of operations for our MPSVs, our shore-based port facility
and vessel management services, including the four non-owned vessels managed for
the U.S. Navy. We do not provide average or effective dayrates for our MPSVs.
MPSV dayrates are impacted by highly variable customer-required cost-of-sales
associated with ancillary equipment and services, such as ROVs, accommodation
units and cranes, which are typically recovered through higher dayrates charged
to the customer. Due to the fact that each of our MPSVs have a workload capacity
and significantly higher income generating potential than each of the Company's
new generation OSVs, the utilization and dayrate levels of our MPSVs can have a
very large impact on our results of operations. For this reason, our
consolidated operating results, on a period-to-period basis, are
disproportionately impacted by the level of dayrates and utilization achieved by
our seven active MPSVs.
                                                     Three Months Ended
                                                          March 31,
                                                      2020          2019
Offshore Supply Vessels:
Average number of new generation OSVs (1)               66.0         66.0

Average number of active new generation OSVs (2) 31.8 29.7 Average new generation OSV fleet capacity (DWT) 238,644 238,845 Average new generation OSV capacity (DWT)

              3,616        3,619

Average new generation OSV utilization rate (3) 28.0 % 32.5 % Effective new generation OSV utilization rate (4) 58.0 % 72.1 % Average new generation OSV dayrate (5)

$   18,203     $ 18,156
Effective dayrate (6)                             $    5,097     $  5,901

(1) We owned 66 new generation OSVs as of March 31, 2020. Excluded from this

data are eight MPSVs owned and operated by the Company and four non-owned

     vessels managed for the U.S. Navy.


(2)  In response to weak market conditions, we elected to stack certain of our
     new generation OSVs on various dates since October 2014. Active new

generation OSVs represent vessels that are immediately available for service

     during each respective period.


(3)  Utilization rates are average rates based on a 365-day year. Vessels are
     considered utilized when they are generating revenues.


(4)  Effective utilization rate is based on a denominator comprised only of
     vessel-days available for service by the active fleet, which excludes the
     impact of stacked vessel days.

(5) Average new generation OSV dayrates represent average revenue per day, which

includes charter hire, crewing services, and net brokerage revenues, based

on the number of days during the period that the OSVs generated revenues.

(6) Effective dayrate represents the average dayrate multiplied by the average

     utilization rate.



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Summarized financial information for the three months ended March 31, 2020 and
2019, respectively, is shown below in the following table (in thousands, except
percentage changes):
                                             Three Months Ended
                                                  March 31,              Increase (Decrease)
                                                                            $             %
                                             2020          2019          Change        Change
Revenues:
  Vessel revenues
Domestic                                  $  28,379     $  27,128     $     1,251         4.6   %
Foreign                                      14,773        18,124          (3,351 )     (18.5 ) %
                                             43,152        45,252          (2,100 )      (4.6 ) %
  Non-vessel revenues                         9,658         8,784             874         9.9   %
                                             52,810        54,036          (1,226 )      (2.3 ) %
Operating expenses                           41,308        40,394             914         2.3   %
Depreciation and amortization                29,115        28,382             733         2.6   %
General and administrative expenses          31,160        11,967          19,193      >100.0   %
                                            101,583        80,743          20,840        25.8   %
Gain on sale of assets                            -            26             (26 )    (100.0 ) %
Operating loss                              (48,773 )     (26,681 )       (22,092 )      82.8   %
Loss on early extinguishment of debt, net    (4,236 )         (71 )        (4,165 )    >100.0   %
Interest expense                            (20,750 )     (19,726 )        (1,024 )       5.2   %
Interest income                                 646         1,114            (468 )     (42.0 ) %
Income tax benefit                          (14,972 )      (8,831 )        (6,141 )      69.5   %
Net loss                                  $ (58,205 )   $ (36,620 )   $   (21,585 )      58.9   %


Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
Revenues. Revenues for the three months ended March 31, 2020 decreased by $1.2
million, or 2.3%, to $52.8 million compared to the same period in 2019. Our
weighted-average active operating fleet for the three months ended March 31,
2020 and 2019 was 38.6 and 35.5 vessels, respectively. For the three months
ended March 31, 2020, we had an average of 35.4 vessels stacked compared to an
average of 38.5 vessels stacked in the prior-year period.
Vessel revenues decreased $2.1 million, or 4.6%, to $43.2 million for the three
months ended March 31, 2020 compared to $45.3 million for the same period in
2019. The decrease in vessel revenues primarily resulted from soft market
conditions for our OSVs partially offset by improved market conditions for our
MPSVs. Revenues from our MPSV fleet increased $2.4 million, or 23.5%, for the
three months ended March 31, 2020 compared to the prior-year period. Average new
generation OSV dayrates were $18,203 for the first three months of 2020 compared
to $18,156 for the same period in 2019. Our new generation OSV utilization was
28.0% for the first three months of 2020 compared to 32.5% for the same period
in 2019. Our new generation OSVs incurred 158 days of aggregate downtime for
regulatory drydockings and were stacked for an aggregate of 3,111 days during
the first three months of 2020. Excluding stacked vessel days, our new
generation OSV effective utilization was 58.0% and 72.1% during the three months
ended March 31, 2020 and 2019, respectively. Domestic vessel revenues increased
$1.3 million from the year-ago period primarily due to revenue earned from one
MPSV operating domestically during the three months ended March 31, 2020
compared to such vessel being stacked in the prior-year period. Foreign vessel
revenues decreased $3.4 million. The decrease in foreign revenues is
attributable to an average of 3.8 fewer vessels working in foreign locations
during the current-year period. Foreign vessel revenues for the first three
months of 2020 comprised 34.2% of our total vessel revenues compared to 40.1%
for the year-ago period.

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Non-vessel revenues increased $0.9 million, or 9.9%, from the prior-year period.
This increase is primarily attributable to higher revenues earned from vessel
management services during the three months ended March 31, 2020 compared to the
year-ago period.
Operating Expenses. Operating expenses were $41.3 million, an increase of $0.9
million, or 2.3%, for the three months ended March 31, 2020 compared to $40.4
million for the same period in 2019. Operating expenses were higher due to an
increased number of active vessels in our fleet during the three months ended
March 31, 2020.
Depreciation and Amortization. Depreciation and amortization expense of $29.1
million was $0.7 million, or 2.6%, higher for the three months ended March 31,
2020 compared to the same period in 2019. Amortization expense increased $1.2
million, which was driven higher mainly by costs associated with the initial
special surveys for vessels that were placed in service under the Company's
fifth OSV newbuild program.
General and Administrative Expense. G&A expense of $31.2 million was $19.2
million higher during the three months ended March 31, 2020 compared to the same
period in 2019. The increase in G&A expense was primarily attributable to
professional fees related to our on-going balance sheet restructuring, higher
short-term incentive compensation expense and an increase in bad debt reserves.
Operating Loss. Operating loss increased by $22.1 million to an operating loss
of $48.8 million during the three months ended March 31, 2020 compared to the
same period in 2019 for the reasons discussed above. Operating loss as a
percentage of revenues was 92.4% for the three months ended March 31, 2020
compared to 49.4% for the same period in 2019.
Loss on Early Extinguishment of Debt, Net. During the three months ended March
31, 2020, we repaid $50.0 million of the $100.0 million outstanding under our
senior credit facility. As a result, we recorded a $4.2 million loss on
extinguishment of debt ($3.3 million or $0.09 per diluted share after-tax) due
to the write-off of deferred issuance costs and a redemption premium. During the
three months ended March 31, 2019, we exchanged $142.6 million in face value of
2020 senior notes for $121.2 million of second-lien term loans and we exchanged
$21.0 million in face value of our 2019 convertible senior notes for $19.9
million of first-lien term loans. In accordance with applicable accounting
guidance, these debt-for-debt exchanges were accounted for as debt
modifications, requiring that we defer the gains on such exchanges and record a
loss on early extinguishment of debt of $3.7 million related to deal costs for
the exchanges.
Interest Expense. Interest expense of $20.8 million was $1.0 million higher than
the same period in 2019 due to incremental interest expense associated with the
issuance of additional first-lien and the second-lien term loans during the
first quarter of 2019 and interest expense associated with the senior credit
facility that was funded during the second quarter of 2019.
Interest Income. Interest income was $0.6 million during the three months ended
March 31, 2020, which was $0.5 million lower than the same period in 2019. Our
average cash balance decreased to $150.5 million for the three months ended
March 31, 2020 compared to $199.9 million for the same period in 2019. The
average interest rate earned on our invested cash balances was 1.7% and 2.3%
during the three months ended March 31, 2020 and 2019, respectively. The
decrease in average cash balance was primarily due to cash outflows associated
with the repayment of $50.0 million under our senior credit facility.
Income Tax Benefit. Our effective tax benefit rate was 20.5% and 19.4% for the
three months ended March 31, 2020 and 2019, respectively. Our income tax benefit
primarily consisted of deferred taxes and our income tax rate differs from the
federal statutory rate primarily due to the establishment of valuation
allowances for state net operating losses and foreign and other tax credit
carryforwards, but also due to expected state tax liabilities and items not
deductible for federal income tax purposes.
Net Loss. Net loss increased by $21.6 million for a reported net loss of $58.2
million for the three months ended March 31, 2020 compared to a net loss of
$36.6 million for the same period during 2019. This unfavorable variance in net
loss was primarily driven by increased general and administrative expenses
during the three months ended March 31, 2020.

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Liquidity and Capital Resources

Despite volatility in commodity prices, we remain confident in the long-term
viability of our business model upon improvement in market conditions. Since the
fall of 2014, our liquidity has been indirectly impacted by low oil and natural
gas prices, which together with oil and natural gas being produced in greater
volumes onshore, has unfavorably impacted the extent of offshore exploration and
development activities, resulting in lower than normal cash flow from
operations. The COVID-19 pandemic is expected to continue to depress demand and
the timing of a global economic recovery is unclear. In addition, oil prices
have been negatively impacted by the recent oil price war initiated by Russia
and Saudi Arabia.
As of March 31, 2020, we had total cash and cash equivalents of $59.0 million
and restricted cash of $14.5 million.
Our capital requirements have historically been financed with cash flows from
operations, proceeds from issuances of our debt and common equity securities,
borrowings under our revolving and term loan agreements and cash received from
the sale of assets. We require capital to fund on-going operations, remaining
obligations under our expanded fifth OSV newbuild program, vessel
recertifications, discretionary capital expenditures and debt service and may
require capital to fund potential future vessel construction, retrofit or
conversion projects, acquisitions or the retirement of debt.
In early 2020, we experienced multiple events of defaults under the existing
2020 senior notes and 2021 senior notes, which included non-payment of principal
and interest on the 2020 senior notes, nonpayment of interest on the 2021 senior
notes and related cross-defaults. Cross-defaults were also triggered under our
existing senior credit agreement, first lien term loan agreement and second lien
term loan agreement. We, together with the administrative agents and certain of
the lenders under our existing senior credit agreement, first lien term loan
agreement and second lien term loan agreement, and certain holders of the
Company's 2020 senior notes and 2021 senior notes entered into
separate forbearance agreements, which were subsequently extended to May 19,
2020, pursuant to which such lenders and noteholders agreed to forbear from
exercising certain of their rights and remedies with respect to certain defaults
by us.
Despite our extensive efforts to negotiate and launch, on February 14, 2020, an
out-of-court debt-for-debt exchange transaction to address our outstanding 2020
senior notes and 2021 senior notes and such events of default, after the advent
of the COVID-19 pandemic and the oil price war in March 2020, it became evident
that an in-court process would be necessary to maximize value for us and our
post-emergence stakeholders while positioning us for long-term success. As a
result of the commencement of the Chapter 11 Cases on May 19, 2020, we have been
operating as a debtor-in-possession pursuant to the authority granted under the
Bankruptcy Code. On June 19, 2020, after a confirmation hearing, the Bankruptcy
Court entered a confirmation order approving the Plan. As a
debtor-in-possession, certain of our activities are subject to review and
approval by the Bankruptcy Court. For additional information, see Note 2 to
consolidated financial statements.
In connection with the filing of the Plan, on May 22, 2020, we entered into the
DIP Credit Agreement, pursuant to which, certain lenders thereunder agreed to
provide us with loans in an aggregate principal amount not to exceed $75 million
that, among other things, was used to repay in full the $50 million in loans
outstanding under our senior credit agreement, and to finance our ongoing
general corporate needs during the course of the Chapter 11 Cases.
As of June 30, 2020, we had total cash and cash equivalents of $89.6 million and
restricted cash of $0.2 million.
The maturity date of the DIP Credit Agreement is six months following the
effective date of the DIP Credit Agreement. The DIP Credit Agreement contains
customary events of default, including events related to the Chapter 11 Cases,
the occurrence of which could result in the acceleration of our obligation to
repay the

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outstanding indebtedness under the DIP Credit Agreement. Our obligations under
the DIP Credit Agreement are secured by a first priority security interest in,
and lien on, substantially all of our present and after-acquired property
(whether tangible, intangible, real, personal or mixed) and has been guaranteed
by our material subsidiaries.

We have received fully committed subscriptions pursuant to the equity Rights
Offering contemplated under the Plan with respect to shares of our new common
stock, including under the Backstop Commitment Agreement. It is contemplated
that the Rights Offering of $100 million will be closed on the effective date of
the Plan. The Plan also provides for us to enter into certain Exit Financings
upon emergence from the Chapter 11 Cases consisting of a first-lien senior
secured term loan credit facility and a second-lien senior secured term loan
credit facility, each in an aggregate principal amount to be determined.
Cash Flows
Operating Activities. We rely primarily on cash flows from operations to provide
working capital for current and future operations. Net cash used in operating
activities was $45.7 million for the three months ended March 31, 2020 compared
to net cash used in operating activities of $26.1 million for the same period in
2019. Operating cash flows for the first three months of 2020 continue to be
unfavorably affected by weak market conditions for our vessels operating
worldwide.
Investing Activities. Net cash used in investing activities was $1.6 million for
the three months ended March 31, 2020 compared to $0.6 million for the same
period in 2019. Cash used during the first three months of 2020 and 2019
consisted primarily of capital improvements for active vessels operating in our
fleet.
Financing Activities. Net cash used in financing activities was $51.6 million
for the three months ended March 31, 2020 compared to $23.7 million for the same
period in 2019. Net cash used in financing activities for the three months ended
March 31, 2020 resulted from the partial repayment of our senior credit
facility. Net cash used in financing activities for the three months ended March
31, 2019 resulted from the repurchase of a portion of our 2019 convertible
senior notes partially offset by net proceeds from the first-lien term loans.
Contractual Obligations
Debt
As of March 31, 2020, we had the following outstanding debt (in thousands,
except effective interest rate):
                                                                Effective   

Cash Interest

                                           Total Debt (4)     Interest Rate       Payment       Payment Dates
5.875% senior notes due 2020, net of     $        224,276         6.08 %       $      6,589     April 1 and
deferred financing costs of $37 (1)                                                             October 1
5.000% senior notes due 2021, net of              449,039         5.21 %             11,250     March 1 and
deferred financing costs of $961 (1)                                                            September 1
First-lien term loans due 2023, plus              356,280         8.88 %              2,679     Variable
deferred gain of $12,158, net of                                                                Monthly
original issue discount of $2,859 and
deferred financing costs of $3,019 (2)
Second-lien term loans due 2025,                  139,128         9.50 %              2,879     January 31,
including deferred gain of $17,893                                                              April 30, July
                                                                                                31, and
                                                                                                October 31
Senior credit facility, net of deferred            47,414         8.17 %                283     Variable
financing costs of $2,586 (3)                                                                   Monthly
                                         $      1,216,137

(1) The senior notes do not require any payments of principal prior to their

stated maturity dates, but pursuant to the indentures under which the 2020

and 2021 senior notes were issued, we would be required to make offers to

purchase such senior notes upon the occurrence of specified events, such as

certain asset sales or a change in control.

(2) The interest rate on the first-lien term loan is variable based on a base

rate at the Company's election. The amount reflected in this table is the

monthly amount payable based on the 30-day LIBOR interest rate that was

elected and in effect on March 31, 2020 plus an applicable margin, which is

currently 7.00%.

(3) The interest rate on the senior credit facility is variable based on 30-day

LIBOR interest rate plus a 5.00% margin. The amount reflected in this table

is the monthly amount payable based on the 30-day LIBOR interest rate that

was in effect on March 31, 2020.

(4) See Item 2 - General regarding the proposed impact of the Chapter 11 Cases

     on the Company's long-term debt including current maturities.



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The credit agreements governing our senior credit facility, first-lien term
loans and second-lien term loans and the indentures governing our 2020 and 2021
senior notes impose certain operating and financial restrictions on us. Such
restrictions affect, and in many cases limit or prohibit, among other things,
our ability to incur additional indebtedness, make capital expenditures, redeem
equity, create liens, sell assets and pay dividends or make other restricted
payments. For the three months ended March 31, 2020, we were in compliance with
all applicable financial covenants other than our March 2, 2020 nonpayment of
interest on the 2021 senior notes, certain reporting obligations and related
cross-defaults.
Capital Expenditures and Related Commitments
During the first quarter of 2018, we notified the shipyard that was constructing
the remaining two vessels in our fifth OSV newbuild program that we were
terminating the construction contracts for such vessels. See additional
discussion in Note 9 of our consolidated financial statements included herein
for further discussion. As of the date of the contract terminations, these two
remaining vessels, both of which are domestic 400 class MPSVs, were projected to
be delivered in the second and third quarters of 2019, respectively. These
projected delivery dates were subsequently amended, for guidance purposes, to be
the second and third quarters of 2020; and then later extended to be the second
and third quarters of 2021. Due to the continued uncertainty of the timing and
location of future construction activities, we have updated our forward guidance
for the delivery dates related to these vessels to be the second and third
quarters of 2022, respectively. The cost of this nearly completed 24-vessel
newbuild program, before construction period interest, is expected to be
approximately $1,335.0 million, of which $22.9 million and $34.6 million are
currently expected to be incurred in fiscal 2021 and fiscal 2022, respectively.
We have not revised our estimate of the cost to complete the vessels to reflect
the disputed claims asserted by the shipyard. In addition, we have not included
any potential costs to complete the vessels in excess of the original contract
price that may not be covered by surety bonds due to the sureties' denial of
claims or for any other reasons. The timing of remaining construction draws
remains subject to change commensurate with any potential further delays in the
delivery dates of such vessels. From the inception of this program through
March 31, 2020, we have incurred construction costs of approximately $1,277.5
million, or 95.7%, of total expected project costs.

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Maintenance and Other Capital Expenditures
The following table summarizes the costs incurred, prior to the allocation of
construction period interest, for the purposes set forth below for the three
months ended March 31, 2020 and 2019, respectively (in millions):
                                                   Three Months Ended
                                                         March 31,
                                                     2020              2019
                                                    Actual            Actual
Maintenance and Other Capital Expenditures:
Maintenance Capital Expenditures
Deferred drydocking charges                 $       6.9              $    

9.3

Other vessel capital improvements (1)               0.4                   

0.3

                                                    7.3                   

9.6

Other Capital Expenditures
Commercial-related vessel improvements (2)          1.1                   

0.2

Miscellaneous non-vessel additions (3)                -                   0.1
                                                    1.1                   0.3
Total                                       $       8.4              $    9.9

(1) Other vessel capital improvements include costs for discretionary vessel

enhancements, which are typically incurred during a planned drydocking event

to meet customer specifications.

(2) Commercial-related vessel improvements include items, such as cranes, ROVs,

helidecks, living quarters, and other specialized vessel equipment, which

costs are typically included in and offset, in whole or in part, by higher

     dayrates charged to customers.


(3)  Non-vessel capital expenditures are primarily related to information
     technology and shoreside support initiatives.





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                           Forward Looking Statements
This Quarterly Report on Form 10-Q contains "forward-looking statements," as
contemplated by the Private Securities Litigation Reform Act of 1995, in which
the Company discusses factors it believes may affect its performance in the
future. Forward-looking statements are all statements other than historical
facts, such as statements regarding assumptions, expectations, beliefs and
projections about future events or conditions. You can generally identify
forward-looking statements by the appearance in such a statement of words like
"anticipate," "believe," "continue," "could," "estimate," "expect," "forecast,"
"intend," "may," "might," "plan," "potential," "predict," "project," "remain,"
"should," "will," "would," or other comparable words or the negative of such
words. The accuracy of the Company's assumptions, expectations, beliefs and
projections depends on events or conditions that change over time and are thus
susceptible to change based on actual experience, new developments and known and
unknown risks. The Company gives no assurance that the forward-looking
statements will prove to be correct and does not undertake any duty to update
them. The Company's actual future results might differ from the forward-looking
statements made in this Quarterly Report on Form 10-Q for a variety of reasons,
including our ability to obtain the Bankruptcy Court's approval with respect to
post-confirmation motions or other requests made to the Bankruptcy Court in the
Chapter 11 Cases; any delays in consummation of the Chapter 11 Cases; risks that
our assumptions and analyses in the Plan are incorrect; our ability to comply
with the covenants under our DIP Credit Agreement; the effects of the Chapter 11
Cases on our business and the interests of various constituents; the actions and
decisions of creditors, regulators and other third parties that have an interest
in the Chapter 11 Cases; restrictions imposed on us by the Bankruptcy Court;
impacts from changes in oil and natural gas prices in the U.S. and worldwide;
continued weakness in demand and/or pricing for the Company's services;
unplanned customer suspensions, cancellations, rate reductions or non-renewals
of vessel charters, or vessel management contracts, or failures to finalize
commitments to charter or manage vessels; continued weakness in capital spending
by customers on offshore exploration and development; the inability to
accurately predict vessel utilization levels and dayrates; sustained weakness in
the number of deepwater and ultra-deepwater drilling units operating in the GoM
or other regions where the Company operates; the impact on the foregoing as a
result of the COVID-19 pandemic and the recent oil price war initiated by Russia
and Saudi Arabia; the Company's inability to successfully complete the final two
vessels of its current vessel newbuild program on-budget, including any failure
or refusal by the issuer of performance bonds to honor the bond contract or to
cover cost overruns that may result at a completion shipyard; the inability to
successfully market the vessels that the Company owns, is constructing or might
acquire; any cancellation or non-renewal by the government of the management,
operations and maintenance contracts for non-owned vessels; an oil spill or
other significant event in the United States or another offshore drilling region
that could have a broad impact on deepwater and other offshore energy
exploration and production activities, such as the suspension of activities or
significant regulatory responses; the imposition of laws or regulations that
result in reduced exploration and production activities or that increase the
Company's operating costs or operating requirements; environmental litigation
that impacts customer plans or projects; disputes with customers; bureaucratic,
administrative operating or court-imposed barriers that prevent or delay vessels
in foreign markets from going or remaining on-hire; administrative, judicial or
political barriers to exploration and production activities in Mexico, Brazil or
other foreign locations; disruption in the timing and/or extent of Mexican
offshore activities or changes in law or governmental policy in Mexico that
restricts or slows the pace of further development of its offshore oilfields;
changes in law or governmental policy or judicial action in Mexico affecting the
Company's Mexican registration of vessels; administrative or other legal changes
in Mexican cabotage laws; other legal or administrative changes in Mexico that
adversely impact planned or expected offshore energy development; unanticipated
difficulty in effectively competing in or operating in international markets;
less than anticipated subsea infrastructure and field development demand in the
Greater GoM Operating Region and other markets affecting the Company's MPSVs;
sustained vessel over capacity for existing demand levels in the markets in
which the Company competes; economic and

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geopolitical risks; weather-related risks; upon a return to improved operating
conditions, the shortage of or the inability to attract and retain qualified
personnel, when needed, including vessel personnel for active vessels or vessels
the Company may reactivate or acquire; any success by others in unionizing any
of the Company's U.S. fleet personnel; regulatory risks; the repeal or
administrative weakening of the Jones Act or adverse changes in the
interpretation of the Jones Act; drydocking delays and cost overruns and related
risks; vessel accidents, pollution incidents or other events resulting in lost
revenue, fines, penalties or other expenses that are unrecoverable from
insurance policies or other third parties; unexpected litigation and insurance
expenses; other industry risks; fluctuations in foreign currency valuations
compared to the U.S. dollar and risks associated with expanded foreign
operations, such as non-compliance with or the unanticipated effect of tax laws,
customs laws, immigration laws, or other legislation that result in higher than
anticipated tax rates or other costs; the inability to repatriate foreign
sourced earnings and profits; the extent of the pending loss or material
limitation of the Company's tax net operating loss carryforwards and other tax
attributes due to a change in control, as defined in Section 382 of the Internal
Revenue Code; our ability to successfully conclude negotiations of the new
first-lien and second-lien exit credit facilities to be entered into in
connection with consummation of the Plan; the potential for any impairment
charges that could arise in the future and that would reduce the Company's
consolidated net tangible assets which, in turn, would further limit the
Company's ability to grant certain liens, make certain investments, and incur
certain debt permitted under the Company's senior notes indentures and term loan
agreements; or the impact of "fresh-start" accounting, which will be applicable
to the Company upon consummation of the Plan. In addition, the Company's future
results may be impacted by adverse economic conditions, such as inflation,
deflation, lack of liquidity in the capital markets or an increase in interest
rates, that may negatively affect it or parties with whom it does business
resulting in their non-payment or inability to perform obligations if and when
required. Should one or more of the foregoing risks or uncertainties materialize
in a way that negatively impacts the Company, or should the Company's underlying
assumptions prove incorrect, the Company's actual results may vary materially
from those anticipated in its forward-looking statements, and its business,
financial condition and results of operations could be materially and adversely
affected and, if sufficiently severe, could result in noncompliance with certain
covenants of the Company's existing indebtedness. Additional factors that you
should consider are set forth in detail in the "Risk Factors" section of the
Company's most recent Annual Report on Form 10-K as well as other filings the
Company has made and will make with the Securities and Exchange Commission
which, after their filing, can be found on the Company's website,
www.hornbeckoffshore.com.

The Company makes references to certain industry-related terms in this Quarterly
Report on Form 10-Q. A glossary and definitions of such terms can be found in
"Part II- Item 5-Other Information" on page 35.
Item 3-Quantitative and Qualitative Disclosures About Market Risk
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, the
Company is not required to provide information under this Item.

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