Hermitage Offshore Announces Financial Results for Q3 2019

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Last week on Thursday, Hermitage Offshore Services Ltd., announced its financial results for the three and nine months ended September 30, 2019.

A reverse asset acquisition resulted in a change in the basis of accounting for the Company in April 2019. As a result, the financial information presented for the three and nine months ended September 30, 2019 and 2018 is not directly comparable.

Results for the three months ended September 30, 2019 and 2018

For the three months ended September 30, 2019, the Company’s net loss was $5.6 million, or $0.28 basic and diluted loss per share (based on 20,162,112 weighted average shares outstanding). The Company recorded a $1.0 million loss on financial instruments (as described below under the caption “DVB Credit Facility”) during the three months ended September 30, 2019. Excluding the loss on financial instruments, the Company’s adjusted net loss (see Non-GAAP Measures section below), was $4.7 million, or $0.23 basic and diluted loss per share.

For the three months ended September 30, 2018 (Predecessor, as defined below) the Company’s net loss was $8.4 million, or $1.36 basic and diluted loss per share (based on 6,198,685 weighted average shares outstanding).

Results for the nine months ended September 30, 2019 and 2018

For the nine months ended September 30, 2019 (combined Predecessor and Successor, which are defined below), the Company’s combined net loss was $16.8 million or $1.11 basic and diluted loss per share (based on 15,170,048 combined weighted average shares outstanding). The Company recorded a $1.5 million loss on financial instruments (as described below under the caption “DVB Credit Facility”) during the nine months ended September 30, 2019. Excluding the loss on financial instruments, the Company’s combined adjusted net loss (see Non-GAAP Measures section below), was $15.4 million, or $1.01 basic and diluted loss per share.

For the nine months ended September 30, 2018 (Predecessor, as defined below), the Company’s net loss was $28.0 million, or $4.51 basic and diluted loss per share (based on 6,198,685 weighted average shares outstanding).

Share and per share results included herein have been retroactively adjusted to reflect the one-for-ten reverse stock split of the Company’s common shares, which took effect on January 28, 2019. There are 22,518,206 common shares outstanding as of the date of this press release.

Summary of third quarter of 2019 and other recent events

Entered into a one year term charter contract for Hermit Power at approximately $13,400 per day (using the GBP/USD exchange rate as of November 13, 2019). This charter is scheduled to commence immediately following the expiration of Hermit Power’s current term contract in early December 2019.

Agreed to extend the deadline under the DVB Supplemental Agreement (as defined below) to unwind the sale of the Company’s two anchor handling tug supply vessels (the “AHTS vessels”) from October 31, 2019 to November 22, 2019 subject to certain terms and conditions contained in the DVB Supplemental Agreement, and expects to be able to further extend the deadline until November 30, 2019. This agreement is described below, and the Company will disclose further updates as negotiations are finalized.

During the third quarter of 2019, the Company’s average daily rates and utilization were as follows:

º The Company’s PSVs (as defined below, operating in the North Sea) earned average dayrates of $11,013 per on-hire day with an average utilization rate of 91.4% of the available days, resulting in an average effective dayrate of $10,071 per available day during the third quarter of 2019. No vessels were in lay-up during the third quarter of 2019.

º The Company’s AHTS vessels (operating in West Africa), which are included in the Company’s results from operations from the Transaction date (as defined below), earned average dayrates of $7,379 per on-hire day with an average utilization of 54.9% of the available days, resulting in an average effective dayrate of $4,050 per available day during the third quarter of 2019. Both AHTS vessels were in drydock for their class required special surveys for an aggregate of 53 days during the third quarter of 2019. Offhire days for drydock are considered part of the available days when calculating average effective dayrates.

º The Company’s Crew Boats (as defined below, operating in West Africa), which are included in the Company’s results from operations from the Transaction date, earned average dayrates of $2,412 per on-hire day with an average utilization of 29.2% of the available days, resulting in an average effective dayrate of $703 per available day during the third quarter of 2019.
The Company’s average effective dayrates that have been fixed thus far in the fourth quarter of 2019 are as follows:

º The Company’s PSVs (operating in the North Sea) – earned average effective dayrates of approximately $9,500 for 83% of the available days. Four of the Company’s PSVs are expected to have special surveys and/or engine overhauls during the fourth quarter of 2019. These special surveys and engine overhauls are scheduled to occur in November and December 2019 and the aggregate costs are expected to be approximately $2.0 million (for all four vessels). The four vessels are expected to be offhire for an aggregate of approximately 60 days during the fourth quarter of 2019.

º The Company’s AHTS vessels (operating in West Africa) – earned average effective dayrates of approximately $8,000 for 70% of the available days.

º The Company’s Crew Boats (operating in West Africa) – earned average effective dayrates of approximately $1,100 for 75% of the available days.

Resignation of Mr. David M. Workman

Effective as of November 13, 2019, Mr. David M. Workman has resigned from the Company’s Board of Directors. The Company has not yet filled the vacancy on the Board of Directors created by Mr. Workman’s resignation.

Drydock and capital expenditure update

The Company made approximately $2.4 million in drydock payments during the three months ended September 30, 2019, which primarily related to the special survey costs on both AHTS vessels. The Company also made approximately $0.6 million in drydock payments for these vessels during the three months ended June 30, 2019. The aggregate cost for both drydocks was approximately $3.6 million of which, approximately $0.2 million remains outstanding, as of the date of this press release.

Four of the Company’s PSVs are expected to have special surveys and/or engine overhauls during the fourth quarter of 2019. These special surveys and engine overhauls are scheduled to occur in November and December 2019 and the aggregate costs are expected to be approximately $2.0 million (for all four vessels). The four vessels are expected to be offhire for an aggregate of approximately 60 days during the fourth quarter of 2019.

Acquisition of assets from SOHI and reverse acquisition accounting treatment

In April 2019, the Company acquired 13 vessels consisting of two AHTS vessels and 11 crew boats (the “Crew Boats”) from SOHI, a related party affiliate, in exchange for 8,126,219 common shares. As part of this acquisition, the Company assumed the aggregate outstanding indebtedness of $9.0 million under a term loan facility with DVB Bank SE, Nordic Branch, or the DVB Credit Facility, relating to the two AHTS vessels. A summary of the DVB Credit Facility is set forth below. The assets acquired in this transaction are collectively referred to as the “SOHI Assets”, and the transactions to acquire the SOHI Assets, and assumption of the related indebtedness, are referred to as the “Transaction”.

As a result of the Transaction, SOHI and its affiliated entities (collectively referred to as “Scorpio”), which are part of the Scorpio group of companies, obtained a controlling voting interest in the Company. Accordingly, under the relevant accounting guidance, Scorpio has been identified as the accounting acquirer of the Company, and the Transaction is considered to be a reverse acquisition. Moreover, the Company has determined that the Transaction constitutes a reverse acquisition of assets rather than a reverse business combination.

Sea News, November 18

Baibhav Mishra
Author: Baibhav Mishra