GulfMark Offshore, Inc. today announced its results of operations for the three-month period ended March 31, 2014. For the first quarter ended March 31, 2014, revenue was $119.6 million, and net income was $16.6 million, or $0.63 per diluted share.
Quintin Kneen, President and CEO, said, “I am excited about what 2014 has in store for GulfMark, and we believe the year is off to a solid start. We recorded our highest first quarter revenue ever, and we still expect 2014 to produce our highest annual revenue ever. We came in just under the midpoint of our first-quarter revenue guidance, which resulted from slightly lower utilization than we originally anticipated, but overall, the average day rate increased during the quarter and we feel comfortable reaffirming our full-year revenue guidance of between $525 and $555 million. Consolidated revenue for the quarter increased 23% year-over-year, and we expect revenue will increase more than 10% in the second quarter, to be in the range of $131 to $136 million.
“The North Sea delivered strong first quarter results in what is typically a slower seasonal period. Our utilization surpassed 90% for the quarter, our highest first quarter utilization in this region since 2010. The average day rate for the region, bolstered by the impact of our new-build vessels, exceeded $22,000, our highest first quarter average since 2008. We continue to expect strong activity for the remainder of the year in the North Sea, and expect average day rates to continue to increase in the second and third quarters.
“We completed the last vessel in the North Sea portion of our current new-build program during the first quarter, and based on their performance and profitability we have entered into an agreement to build one more Arctic Class PSV to be delivered in late 2015. We continue to view the Arctic as an area of high potential for these vessels, and as an opportunity to achieve above average returns in the Norwegian market.
“The Americas region continued its solid performance and achieved 86% utilization during the first quarter. In the U.S. Gulf of Mexico, we are experiencing the temporary softness we previously discussed and anticipated as vessel deliveries precede new rig additions, and we still expect this market to strengthen during the second half of the year. Our first quarter guidance assumed a utilization rate in the U.S. Gulf of Mexico that was 2.5 percentage points higher than we realized, but the average day rate for the region continued to hold. In addition, we made improvements in our operational efficiency in Brazil that allowed us to keep our utilization above 90% during the quarter in that subregion.
“Our Southeast Asia fleet continues to deliver high returns on investment. As we expected, day rates remained steady at just above $15,000 per day; however, our quarterly utilization decreased to 86% simply due to increased drydock days compared to the fourth quarter. Long-term fundamentals continue to improve, and we expect this strength to remain steady during 2014 as the Southeast Asia market continues to increase offshore drilling activity.
“We remain optimistic about the near-term and long-term fundamentals of our business, and we will continue to make strategic fleet investments and divestitures that create long-term value for our stockholders and satisfy the intensifying customer demand for safe, efficient, reliable, high-specification vessels around the world.”
Consolidated First Quarter Results
Consolidated revenue for the first quarter of 2014 was $119.6 million, a decrease of 4%, or $5.0 million, from the fourth quarter of 2013. The sequential decrease in quarterly revenue was largely the result of the decrease in overall utilization, from 92% in the fourth quarter to 88% in the first quarter. Consolidated operating income was $23.2 million, down $10.9 million from the fourth-quarter amount. The sequential decrease was due mainly to lower revenue combined with higher drydock expense, higher direct operating expenses and depreciation expense resulting from the delivery of our new-build vessels, and higher general and administrative expenses due to higher salaries and benefits and professional fees.
Regional Results for the First Quarter
In the North Sea region, first quarter revenue was $52.6 million, an increase of $2.8 million, or 6%, from the fourth quarter. Contrary to typical seasonal patterns, utilization increased slightly compared to the fourth quarter, and the average day rate increased 3%. Higher than anticipated activity in the earlier months of the quarter, combined with the impact of our new-build vessel deliveries, contributed to the increase in the region.
Revenue in the Southeast Asia region was $18.3 million, a decrease of approximately $1.3 million, or 6%, from the fourth quarter amount. The decrease in revenue was due to a 5 percentage point decrease in utilization, offset by a 1% increase in the average day rate. The utilization decrease was primarily due to increased downtime due to drydocks during the first quarter, compared with the fourth quarter of 2013 when we had no days in drydock.
First quarter revenue for the Americas region was $48.7 million, a decrease of $6.5 million or 12% from the previous quarter. The average day rate decreased 1% from the prior quarter, and utilization decreased 9 percentage points. During the quarter we had 73 more drydock days, which was a main contributor to the utilization decrease.
Consolidated Operating Expenses for the First Quarter
Direct operating expenses for the first quarter were $56.3 million, in line with the company’s previous guidance, and increased $0.6 million, or 1%, from the fourth quarter due mainly to the effects of the new vessel deliveries in the North Sea. Drydock expense in the first quarter was $7.2 million, $1.8 million less than the previous guidance of $9 million. General and administrative expense was $14.5 million for the first quarter, in line with our anticipated 2014 quarterly run rate.
Liquidity and Capital Commitments
Cash provided by operating activities totaled $17.6 million in the first quarter of 2014. Cash on hand at March 31, 2014, was $25.7 million, and approximately $51.0 million was drawn on the revolving credit facilities. Total debt at March 31, 2014, was $551.8 million, and debt net of cash was $526.1 million.
Capital expenditures during the first quarter totaled $96.1 million, which included $58.6 million of progress payments on the construction of new vessels and $31.0 million for the purchase of a vessel in the North Sea. As of March 31, 2014, the Company had approximately $107.3 million of remaining capital commitments related to the construction of five vessels. Anticipated progress payments over the next two calendar years, including the newly announced Arctic Class vessel, are as follows: $46.8 million in 2014 and $60.5 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