Hornbeck

Energy: Offshore Oilfield Services
Initiating Coverage
HORNBECK OFFSHORE SERVICES, INC. (HOS: $57.64)

September 26, 2013
Market Data
12-18 Month Price Target 52-Week Range ADTV - 90Day (000s) Market Cap ($MM) Shares Out (MM) Public Market Float (MM) Dividend 70.00 $59.40 - $31.96 415.3 $2,076.5 35.5 32.2 NA
Rating: Buy
Price Target: 70.00
Initiating Coverage With a Buy - Strong Gulf of Mexico Fueling Growth

Summary
We are initiating coverage of Hornbeck Offshore Services, Inc. (HOS) with a Buy rating and price target of $70, which represents 7.2x our 2015 EBITDA estimate. Hornbeck is the largest publicly traded provider of offshore support vessels to the US Gulf of Mexico and a de facto pure play on the offshore support vessel industry in the Western Hemisphere that includes core growth markets such as the US Gulf of Mexico, Brazil, and Mexico. We believe Hornbecks strong position in this core region will result in outsized growth, warranting a premium valuation relative to its peer group.
EPS ($)
FY DEC Q1 Q2 Q3 Q4 YEAR 2012 Actual $1.12A 2013 Previous Current $0.59A $0.68A $0.59E $0.66E $2.52E 2014 Previous Current $0.86E $1.06E $1.25E $1.40E $4.58E
Key Points
s
Valuation Ratio
P/E EV/EBITDA EV/S FY12 51.5x 13.1x 5.4x FY13 22.9x 9.5x 4.5x FY14 12.6x 6.6x 3.5x
s
Financial Data
Revenue EBITDA Debt/Capital BV/Share CapEx FY12 $512.7A $208.8A 48.3%A $32.31A $264.1A FY13 $605.9E $289.5E 51.4%E $33.96E $661.2E FY14 $792.0E $419.0E 48.3%E $38.41E $389.9E
Balance Sheet
Long Term Debt FY12 $850.5A FY13 $1,057.4E FY14 $1,057.4E
Company Description
Hornbeck Offshore Services, Inc. is a leading provider of marine services with a fleet of technologically advanced, new generation offshore supply vessels and multipurpose support vessels. The firm caters to offshore oil and gas exploration and production, oilfield services, offshore construction, and U.S. military-related services. Hornbeck employs approximately 1,300 people.
Pureplay upstream support vessel company. Following the sale of its downstream tanker and tug business to Genesis Marine for $230 million, Hornbeck has become a pure play offshore support vessel company focused on the Western Hemisphere with the bulk of its operations in the US Gulf of Mexico. We believe the redeployment of capital from the downstream business to the upstream business will result in improvement in Hornbeck's long-term return on invested capital. Highgrading of the OSV fleet continues. Hornbeck continues to invest in its fleet through the combination of its retrofit program and Project Spartan newbuild program. Hornbeck's retrofit program involves upgrading six Super 200 class DP-1 OSVs into 240 class DP-2 OSVs at a total cost of ~$50 million. The Spartan 300 program involves constructing 4 300 class, 6 310 class, and 10 320 class vessels for ~$1 billion. The company has also been active in divesting older assets with lower specifications than its 240 class vessels. Multi Purpose Support Vessels to target growing market. Hornbeck is building 4 310 class MPSVs to add to its existing 4 MPSVs. These Jones Act compliant vessels will target the growing inspection, repair, and maintenance market that we believe could see growth of greater than 50% over the next 5 years. In the US Gulf of Mexico alone, ~50 deepwater fields should come online all needing vessels of this type to service them. US Gulf of Mexico activity remains robust. We believe that 14 additional floating rigs will enter the US GOM in 2014 and there will be ~60 floating rigs working in the US GOM by the end of 2015. We believe that, including current newbuilds, by the end of 2015, there will be ~160 OSVs (DP2 &3k+ dead weight tons) capable of serving these rigs. We believe this would represent a balanced market with high utilization that will allow for rising dayrates. Valuation. Our $70 target price is based on a weighted average of an EV/ EBITDA multiple of 7x (40%), a P/E multiple of 16x (40%), and DCF valuation of $31 (20%). The multiples represent the 5-year historical averages for the company, which we believe is appropriate for a company mid-upcycle. Our $70 target suggests that the stock has significant upside from current levels.
Todd P. Scholl, CFA 713.403.3984 tscholl@wundernet.com
For Required Disclosures and Reg AC, please see page 18 of report
FINRA/SIPC
Wunderlich Securities, Inc. Five Post Oak Park, Suite 1400 4400 Post Oak Parkway Houston, TX 77027
Hornbeck Offshore Services, Inc.
September 26, 2013
Executive summary We are initiating coverage of Hornbeck Offshore Services with a Buy rating and price target of $70, which represents 7.0x our 2015 EBITDA estimate. Hornbeck is the largest publicly traded provider of offshore support vessels to the US Gulf of Mexico and a de facto pure play on the offshore support vessel industry in the Western Hemisphere that includes core growth markets such as the US Gulf of Mexico, Brazil, and Mexico. We believe Hornbecks strong position in this core region will result in outsized growth, warranting a premium valuation relative to its peer group. Company overview Headquartered in Covington, Louisiana, Hornbeck Offshore Services is a leading provider of marine services with a fleet of technologically advanced, new generation offshore supply vessels and multi-purpose support vessels. The firm caters to offshore oil and gas exploration and production, oilfield services, offshore construction, and U.S. military related services. Hornbeck Offshore Services employs approximately 1,300 people. The company was formed in 1997 through the merger of LEEVAC Marine and Hornbeck Offshore Services and completed its initial public offering in March of 2004. Hornbecks Upstream business is comprised of 55 vessels. These include 51 new generation Offshore Supply Vessels (OSVs), and 4 new generation Multi-Purpose Support Vessels (MPSVs). The company also has 23 additional high-specification 300 Class Upstream vessels under construction for delivery on various dates through 2016. The new construction forms a part of the companys fifth OSV newbuild program, Project Spartan. In August 2013, Hornbeck sold most of its downstream business (including a fleet of nine ocean-going tugs and nine double-hulled tank barges) assets to Genesis Marine for $230 million in cash. The company expects to use the after-tax proceeds from this transaction for general corporate purposes, which may include retirement of debt or funding the acquisition, construction, or retrofit of vessels. For perspective, Hornbecks upstream services accounted for 97% operating income during 2012 with the downstream business accounting for the remainder.
Todd P. Scholl, CFA 713.403.3984 tscholl@wundernet.com 2
Wunderlich Securities, Inc.
September 26, 2013
Fig. 1
Hornbeck Offshore Services, Inc. - Portfolio

Fleet Composition Active Fleet
OSV MPSV 4
50
Under Construction
19
Cold Stacked Financials 2012 (USD million ) * Revenue
463.3
Operating Income
118.0
*Note: Financials exclude contribution from the companys downstream business in 2012 Source: Company filings
Fleet details Over the companys history, Hornbeck has largely chosen to grow its fleet organically through a series of newbuild programs. These newbuild programs allow the company to customize their vessels and reap the benefits of having a standardized fleet. The company is currently in the process of executing on its fifth newbuild program called Project Spartan. Periodically, the company also has chosen to enhance some of its older vessels through a stretch program. The company is currently undertaking such a retrofit program by upgrading six Super 200 class DP-1 vessels into 240 class DP-2 vessels at an estimated cost of $50 million with deliveries expected during 2013. Hornbecks active fleet is comprised exclusively of new generation vessels, which are generally defined as modern OSVs capable of operating in deepwater settings. Hornbecks OSV fleet is approximately eight years in age, which is below the peer group average of 13 years. The companys upstream fleet is comprised of the following: Platform Supply Vessels (51): PSVs may be referred to as OSVs and are typically deployed to supply drilling rigs and production facilities with cargo ranging from pipe and equipment to liquid mud, drilling water, fuel, and even personnel. Multi-Purpose Support Vessels (4): MPSVs are significantly larger than OSVs and are capable of handling more complex deepwater applications.
September 26, 2013
Together with Hornbecks 6 remotely operated vehicles (ROV) that may be installed on these vessels, the fleet is capable of services ranging from subsea construction and installation, intervention, maintenance, repair (known as IRM), to decommissioning services. Regional analysis The bulk of Hornbeck Offshores operations are located within the Western Hemisphere with the exception being two vessels from the companys upstream fleet that are working in Qatar on long-term contracts that were acquired as part of an acquisition. Within the Unites States, Hornbecks upstream fleet has two vessels supporting US military operations on the east coast and three on the west coast. The rest of Hornbecks U.S.-based upstream fleet (30 OSVs and four MPSVs) are working in the US Gulf of Mexico. Additionally, Hornbeck has eight OSVs in Mexico, five based in Brazil, and two in the Middle East. Lastly, Hornbeck has one stacked conventional OSV. Hornbeck is a top OSV contractor in each of the three largest markets in the Western Hemisphere. Within the US Gulf of Mexico, Hornbeck is the second largest provider as measured by dead weight tonnage with 23% of that market behind only private contractor Edison Chouest Offshore. In South America, Hornbeck is the sixth largest contractor by dead weight tonnage with 3% of the total market. In Mexico, Hornbeck is the largest contract by dead weight tonnage with 14% of the total market.
Fig. 2
Hornbeck Offshore Services, Inc. - Vessel Distribution by Regions
Under Construction (23) OSV 19 MPSV 4
US GOM (39) Military 5 OSV 30 MPSV 4 Middle East (2) OSV 2
Mexico (8) OSV - 8 Brazil (5) OSV - 5
Source: Company filings Note: The vessel distribution by region excludes one cold stacked vessel.
September 26, 2013
Competition The competitive landscape in the OSV market is highly fragmented. There are over 500 service providers including public and privately held companies, with approximately 3,500 vessels on the market, including AHTSs and older conventional OSVs. However, the industry is top heavy in that the top 15 companies control roughly 1,250 vessels or approximately 35% of the market. In the U.S. GOM, Hornbeck faces competition from the likes of private players like Edison Chouest (ECO-NR), Harvey Gulf, Bordelon Marine, and Laborde Marine as well as public players like Gulfmark Offshore (GLF$51.54, Hold), Tidewater (TDW-$58.33, Buy), and Seacor Holdings (CKHNR). In our opinion, operators in this market, in a sense, benefit from the protection of the Jones Act, which prohibits foreign owned or flagged vessels from operating in the U.S. and Puerto Rico. As such, Hornbecks list of competitors in its foreign markets grows to include the likes of Bourbon (GBB.PA-19.00, Buy), Farstad (FAR.OL-NR), DOF (DFASF-NR), and Deep Sea Supply (DSSPF-NR) to name a few. In addition to day rates, OSV operators typically compete on the capability and age of their vessels as well as availability and scheduling.
Fig. 3
Hornbeck Offshore Services, Inc. - Peer Group
Upstream Services
-------------------------------Downstream Services
---------------------------------------------------------------------------------
---
Source: Company filings, WSI Estimate Fig. 4

Hornbeck Offshore Services, Inc. - PSV Comparison
140 120
100 80 120
108
78 52
60 40
20 0
49
29 24
23
19
16
Source: Marinebase, Hornbeck, Gulfmark, Bourbon, Abdon Callais, Farstad, DOF CBO, Seacor, Company filings
September 26, 2013
Customers Hornbeck has a diverse customer base that includes independent E&Ps such as Anadarko (APC-NR) and BHP Billiton (BHP-NR); National Oil Companies (NOCs) like Pemex and Petrobras (PBR-NR); oil services companies like Halliburton (HAL-NR) and Technip (TEC.PA-NR); and Integrated Oil Companies (IOCs) like Chevron (CVX-NR) and Shell (RDSNR), as well as the U.S. Military. This broad mix of customers helps mitigate Hornbecks reliance on any single customer. However in 2012, two customers each accounted for more than 10% of the companys total revenues for a total of 30%.
Fig. 5
Hornbeck Offshore Services, Inc. - Customer Mix, 2012
2012 Upstream Revenue

U.S. Government 12% Oilfield Service Cos. 16% Independent E&P 8% National Oil Cos. 19%
Integrated Oil Cos. 45%
Source: Company filings
September 26, 2013
Valuation Peer group comparison Given Hornbecks exposure to the Latin American market, we believe it is worthwhile to take a look at two sets of peers in our valuation analysis. Specifically, these are Hornbecks U.S. counterparts (Gulfmark, Tidewater and to a lesser extent, Seacor) as well as Hornbecks European counterparts (Deep Sea, Solstad (SOFF.OL-NR), Farstad, Bourbon, Siem (SSI.OL-NR) and DOF). Based on our 2012 estimates, Hornbeck currently trades at a priceto-earnings multiple of 10.1x, which represents a 27% discount to the U.S. peer group average, and a significant premium to the European peer group average of 59%. On an EV/EBITDA and price-to-book basis however, Hornbeck trades roughly in line with its peer group averages at 6.3x and 1.8x, respectively. 5-Year Average: Over the past five years, Hornbecks P/E multiple has averaged 22.9x, mostly within a band of 3x to 25x. Looking only in the past year, however, P/E has averaged 19x in a range of 11x to 25x as 2012 consensus EPS estimates were taken lower throughout the year. EV/EBITDA averaged 5.7x within a band of 5x to 7x.
Fig. 6 Hornbeck Offshore Services, Inc. - Peer Company Comparison Peer Comparison 2015 Valuations 5-Year Averages P/E EV/EBITDA P/Book P/E EV/EBITDA P/Book Bourbon 6.3x 6.2x 0.8x 13.7x 8.7x 1.1x Deep Sea 6.6x 6.9x 1.8x 7.6x 7.0x 1.1x Solstad 5.6x 8.4x 0.9x 8.0x 7.0x 0.7x Farstad 7.6x 5.5x 0.8x 8.2x 6.6x 0.8x DOF 5.1x 5.3x 0.8x 10.7x 8.2x 0.6x Siem 6.8x 5.7x 0.8x 11.2x 8.4x 0.7x European Peers 6.3x 6.3x 1.0x 9.9x 7.7x 0.9x Gulfmark Offshore 9.9x 7.3x 1.4x 10.9x 6.6x 0.9x Tidewater 8.4x 6.6x 1.1x 11.2x 6.7x 0.9x Seacor 22.9x 9.2x 1.2x 14.6x 5.3x 1.0x U.S. Peers 13.8x 7.7x 1.2x 12.2x 6.2x 0.9x
Hornbeck Offshore 10.1x Target Multiples 16.0x Source: WSI Estimate, Factset 6.3x 7.0x 1.8x 22.9x 6.8x 0.9x -
September 26, 2013
Basis of valuation Target Multiples: Our target multiples of 16.0x 2015 EPS and 7.0x EBITDA are based on the mid-point of the companys 5-year historical range, which we believe are appropriate multiples during the middle of the current upcycle. In addition to target multiples, we have evaluated Hornbeck on a discounted cash flow (DCF) basis using a 5-year period. Note, however, that the significant capital expenditure commitments in our offshore support vessel universe over the next five years may cause our DCF valuations to be less meaningful. As such, we have assigned a lower weighting to this method. Based on a weighted average of EV/EBITDA (40%), P/E (40%), and DCF (20%), we have derived a twelve-month target price of $70 per share, which suggests that the stock has significant upside from current levels.
Fig. 7
Hornbeck Offshore Services, Inc. - Valuation
Methodology P/E, 2015 Target Multiple of 16.0x EV/EBITDA, 2015 Target Multiple of 7.0x Discounted Cash Flow Valuation Overall Average Share Price (as of September 24, 2013)
Source: WSI Estimate, Factset
Weights 40% 40% 20%
Price ($) 92 67 31 70 58
September 26, 2013
APPENDIX I: Discounted Cash Flow

Hornbeck Offshore Services, Inc. - DCF Valuation Hornbeck Offshore - DCF Valuation
Current share price (USD) Outstanding number of shares Current Market cap (USDmm) LT growth rate (%) (USDmm) Risk free rate Equity risk premium Beta (x) Cost of equity (%) Cost of net debt before taxes Assumed tax rate Net cost of net debt (%) Net Debt Equity Net Debt / (Net debt + Equity) % WACC (%) Net income pre minorities + net cost of net debt + DDA Cash Flow from operations debt adjusted + moves in working capital and other - Capex ( net of disposals ) Free Cash Flow NOPLAT Time period 1/(1+ WACC) Discount factor PV of Cash Flow NOPLAT Cumulative PV of FCF Terminal value PV of terminal value Enterprise value - Net debt - Minority interest Implied equity value Implied equity value (USD/share ) Current share price (USD) Upside/(downside) potential 56.53 36.7 2,074.7 3.0% 2012 4.0% 6.0% 1.80 14.8% 7.5% 35.0% 4.9% 512.8 1,165.8 30.5% 11.8% 40.6 25.0 87.8 153.4 (35.2) (264.1) (145.9) 1 0.89 0.89 (130.6) (99.9) 3,387.2 1,977.3 1,877.4 (724.0) 1,153.5 31.43 56.53 -45.6% 2013 4.0% 6.0% 1.80 14.8% 7.5% 35.0% 4.9% 1,010.5 1,241.6 44.9% 10.3% 92.1 49.3 98.1 239.5 (11.0) (661.2) (432.7) 2 0.91 0.81 (350.8) 2014 4.0% 6.0% 1.80 14.8% 7.5% 35.0% 4.9% 1,143.3 1,409.7 44.8% 10.4% 168.1 55.7 117.8 341.6 (47.1) (389.9) (95.4) 3 0.91 0.73 (70.1) 2015 4.0% 6.0% 1.80 14.8% 7.5% 35.0% 4.9% 823.7 1,620.5 33.7% 11.5% 210.8 40.2 130.4 381.4 (17.9) (22.0) 341.5 4 0.90 0.66 225.1 2016 4.0% 6.0% 1.80 14.8% 7.5% 35.0% 4.9% 438.8 1,886.3 18.9% 12.9% 265.8 21.4 143.9 431.1 (21.0) (22.0) 388.0 5 0.89 0.58 226.5 at target 4.0% 6.0% 1.80 14.8% 7.5% 35.0% 4.9% 0.0% 14.8%
Fig. 8
Source: Company filings, WSI Estimate, Bloomberg
September 26, 2013
APPENDIX II: Balance Sheet Items Cash usage Hornbeck has been focused on funding its fifth newbuild program call Project Spartan and its vessel enhancement program. Our assumptions include these expected uses of cash.
Fig. 9
Hornbeck Offshore Services, Inc. -Capital Expenditures
USD million
700 661
600 500
400
390
274 264 73 2011 2012 Capex 2013E 2014E
300 200
100
62
2009 2010
22
2015E
Source: Company filings, WSI Estimates Fig. 10

Hornbeck Offshore Services, Inc. -Debt Maturities
Figures Stated in USD Million 6.125% Senior Notes 8.000% Senior Notes 5.875% Senior Notes 1.500% Convertible Senior Notes 1.625% Convertible Sr. Notes Revolving Credit Facility Total Long-Term Debt Cash Net Debt EBITDA (2014E) Net Debt/EBITDA Source: Company filings
2013 239 239
2014 -
Maturity Date 2015 2016 2017 Beyond Balance 245 245 375 230 605 245 375 230 239 1,089 591 499 419 1.2x
September 26, 2013
APPENDIX III: Shareholders and Management Team

Fig. 11
Hornbeck Offshore Services, Inc. -Top 10 Shareholders
Number of Shares Held 2,890,815 2,803,793 2,130,653 2,056,939 1,534,297 1,516,026 1,343,940 1,171,359 1,128,462 956,370 17,532,654 % of Shares Outstanding 8.08 7.83 5.95 5.75 4.29 4.24 3.76 3.27 3.15 2.67 48.99
Shareholders Dimensional Fund Advisors Blackrock Fund Advisors Hunt Bruce W Vanguard Group Inc Fine Capital Partners LP Water Street Capital Inc Orbis Holdings Ltd Columbia Wanger Asset Management JP Morgan Northern Trust Corporation Total
Source: Bloomberg Fig. 12 Hornbeck Offshore Services, Inc. -Senior Management Key Senior Management Team Members
Mr. Hornbeck, Chairman of the Board, President and Chief Executive Officer Mr. Hornbeck has served as President and as a director since the company's formation in June 1997. Until February 2002, he also served as Chief Operating Officer. In February 2002, he was appointed Chief Executive Officer. In May 2005 he was elected to the position of Chairman of the Board. Mr. Hornbeck worked for the original Hornbeck Offshore Services, Inc., a publicly traded offshore service vessel company, from 1991 to 1996, serving in various positions relating to business strategy and development. Following the merger of Hornbeck Offshore Services, Inc. with Tidewater, Inc. in March 1996, he accepted a position as Marketing DirectorGulf of Mexico, where his responsibilities included managing relationships and overall business development in the U.S. Gulf of Mexico region. Mr. Annessa, Executive Vice President and Chief Operating Officer Mr. Carl G Annessa was appointed an Executive Vice President in February 2005. Before that time, Mr. Annessa acted Hornbecks Vice President of Operations, beginning September 1997. In February 2002, he was also appointed Vice President and Chief Operating Officer. Mr. Annessa is responsible for operational oversight and design and implementation of the companys vessel construction programs. Prior to joining Hornbeck Offshore, he was employed for 17 years by Tidewater, Inc. in various technical and operational management positions, including management of large fleets of OSVs in the Arabian Gulf, Caribbean and West African markets, and was responsible for the design of several of Tidewaters vessels. Mr. Annessa was employed for two years by Avondale Shipyards, Inc. as a naval architect before joining Tidewater. Mr. Annessa received a degree in naval architecture and mechanical engineering from the University of Michigan in 1979. Mr. Harp, Jr., Executive Vice President and Chief Financial Officer Mr. Harp was appointed an Executive Vice President in February 2005. Before that time, Mr. Harp served as Hornbecks Vice President of Finance from January 2001. He has served as the Chief Financial Officer since January 2001. Before joining Hornbeck Offshore, Mr. Harp served as Vice President in the Energy Group of RBC Dominion Securities Corporation, an investment banking firm, from August 1999 to January 2001 and as Vice President in the Energy Group of Jefferies & Company, Inc., an investment banking firm, from June 1997 to August 1999. During his investment banking career, Mr. Harp worked extensively with marine-related oil service companies, including as Hornbecks investment banker in connection with its private placement of common stock in November 2000. From July 1982 to June 1997 he served in a variety of capacities, most recently as Tax Principal, with Arthur Andersen LLP, and had a significant concentration of international clients in the oil service and maritime industries. Since April 1992, he has also served as Treasurer and Director of SEISCO, Inc., a privately-held seismic brokerage company. Mr. Harp is an inactive certified public accountant in Louisiana.
Source: Company filings
September 26, 2013
APPENDIX IV: Financial Model

Fig. 13 Hornbeck Offshore Services, Inc. -Income Statement HORNBECK OFFSHORE 2011 (USD million) Revenue Upstream 330.8 Downstream 50.8 Total Revenue 381.6
2012
2013E
2014E
2015E
463.3 49.4 512.7
564.3 41.5 605.9
792.0 0.0 792.0
929.5 0.0 929.5
Costs And Expenses Operating Expenses Gross Profit DD&A SG&A Gain On Sale, Other Operating Profit Interest Income Interest Expense Other Income, Net Pretax Income Tax Expense / (Benefit) Tax Rate Net Income Before Extra. Items Extraordinary Items Reported Net Income EPS - Continuing Operations Reported EPS Average Diluted Shares EBITDA EBITDA/Share After-Tax CF After-Tax CFPS Book Value Book Value/Share Cash Debt Net Cash Cash/Share Debt/Share Net Cash/Share Source: Company filings, WSI Estimates
211.2 170.4 81.6 35.4 1.5 55.0 0.8 (59.6) 0.4 (3.4) (0.8) 24% (2.6) 0.0 (2.6) ($0.09) ($0.09) 28.1 136.6 $4.86 79.0 $2.81 1073.0 $38.21 356.8 770.6 -413.8 $12.71 $27.44 ($14.74)
255.4 257.3 87.8 48.5 0.0 121.0 2.1 (57.7) 0.2 65.6 25.0 38% 40.6 (3.6) 37.0 $1.12 $1.02 36.1
264.1 341.8 98.1 53.9 1.6 191.4 1.6 (50.5) (0.0) 142.5 50.3 35% 92.1 (16.2) 76.0 $2.52 $2.08 36.6
305.6 486.3 117.8 67.3 0.0 301.2 0.8 (47.3) 0.0 254.7 86.6 34% 168.1 0.0 168.1 $4.58 $4.58 36.7
354.6 574.9 130.4 79.0 0.0 365.5 1.3 (47.3) 0.0 319.4 108.6 34% 210.8 0.0 210.8 $5.74 $5.74 36.7
208.8 289.5 $5.79 $7.92 128.4 190.3 $3.56 $5.20 1165.8 1241.6 $32.31 $33.96 576.7 304.2 1089.4 1314.7 -512.8 -1010.5 $15.98 $8.32 $30.20 $35.96 ($14.21) ($27.64)
419.0 495.9 $11.42 $13.51 285.9 341.2 $7.79 $9.30 1409.7 1620.5 $38.41 $44.15 171.3 490.9 1314.7 1314.7 -1143.3 -823.7 $4.67 $13.38 $35.82 $35.82 ($31.15) ($22.44)
September 26, 2013

Fig. 14 Hornbeck Offshore Services, Inc. -Cash Flow Statement HORNBECK OFFSHORE 2011 2012 (USD million)
Operating Activities Net Income Depreciation & Amortization Stock Based Compensation Expense Deferred Taxes Expense (Gain) On Asset Sale Other Changes In Working Capital CF From Operating Investing Activities Costs Incurred For MPSV Program Costs Incurred For OSV Program Costs Incurred For TTB Program Net Proceeds From Asset Sales Vessel Capex Non-Vessel Capex CF From Investing Financing Activities Debt Borrowing/(Repay) Net Proceeds From Other Shares Issued Other CF From Financing Exchange Rate Effects
2013E
2014E
2015E
(2.6) 81.6 7.5 (9.5) (1.5) 17.3 (30.6) 63.7
37.0 87.8 10.9 22.2 (0.3) 6.6 (14.5) 158.6
76.0 98.1 8.7 6.3 0.0 46.5 (29.6) 206.0
168.1 117.8 7.2 6.3 0.0 20.8 (47.1) 273.1
210.8 130.4 7.2 6.3 0.0 20.8 (17.9) 357.6
0.0 (42.0) 0.0 11.3 (29.0) (1.8) (62.3)
0.0 (243.2) 0.0 4.3 (17.6) (3.3) (259.8)
0.0 (644.7) 0.0 5.6 (10.5) (6.0) (655.6)
0.0 (367.9) 0.0 5.6 (14.0) (8.0) (384.3)
0.0 0.0 0.0 5.6 (14.0) (8.0) (16.4)
3.2 231.2 (0.5) 228.8 (0.4)
371.3 52.3 (102.4) 321.3 (0.2)
198.7 7.3 (29.0) 177.0 0.2
0.0 7.3 (29.0) (21.7) 0.1
0.0 7.3 (29.0) (21.7) 0.1
Net Increase (Decrease) In Cash Cash At Beginning Of Period Cash At End Of Period Source: Company filings, WSI Estimates
229.9 127.0 356.8
219.9 356.8 576.7
(272.5) 576.7 304.2
(132.9) 304.2 171.3
319.6 171.3 490.9
September 26, 2013

Fig. 15 Hornbeck Offshore Services, Inc. -Balance Sheet HORNBECK OFFSHORE 2011 (USD million)
Assets Cash & Equivalents Receivables, Net Other Current Assets Current Assets Net PP&E Deferred Charges, Net Other Assets Total Assets Liabilities & Shareholders' Equity Short-Term Debt Accounts Payable Accrued Interest Accrued Payroll Deferred Revenue Other Current Liabilities Long-Term Debt Deferred Taxes Other Shareholders' Equity Total Liabilities & S/E Source: Company filings, WSI Estimates
2012
2013E
2014E
2015E
356.8 89.8 25.3 472.0 1,605.8 44.1 14.5 2,136.3
576.7 103.3 51.6 731.5 1,812.1 74.8 13.3 2,631.7
304.2 124.5 52.0 480.6 2,373.0 81.9 13.0 2,948.6
171.3 177.5 74.1 422.9 2,606.0 81.9 13.0 3,123.9
490.9 197.6 82.5 771.0 2,454.3 81.9 13.0 3,320.3
0.0 36.7 9.3 11.8 2.8 8.4 69.1 770.6 216.6 7.1 1,073.0 2,136.3
238.9 48.3 14.8 13.7 19.4 8.3 343.5 850.5 270.5 1.4 1,165.8 2,631.7
257.3 53.4 13.6 12.4 19.4 16.5 372.5 1,057.4 272.2 4.9 1,241.6 2,948.6
257.3 76.2 13.6 17.6 19.4 16.5 400.5 1,057.4 272.2 -15.9 1,409.7 3,123.9
257.3 84.8 13.6 19.6 19.4 16.5 411.1 1,057.4 272.2 -40.9 1,620.5 3,320.3
September 26, 2013
APPENDIX V: Historical and Estimated Returns

Fig. 16
35.0% 30.0%
Hornbeck Offshore Services, Inc. -Return on Assets 32.1% 32.9%
27.7%
26.2% 22.1%
12.0% 7.9%
25.0% 20.0% 15.0% 10.0%

5.0% 0.0% 10.9%
6.2% -0.5%
-5.0%
2006 2007 2008 2009 2010 2011 2012 2013E 2014E 2015E

80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0%
Hornbeck Offshore Services, Inc. -Return on Equity
74.6% 74.6% 66.9% 50.7%

55.7%
27.0%
17.7%
25.2%
13.2% -1.1%
2006
2007
2008
2009
2010
2011
2012
2013E 2014E 2015E

40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0%
Hornbeck Offshore Services, Inc. -Return on Invested Capital
33.3% 34.3%
28.7% 23.1%
12.4%
27.4%
11.3% 8.1% -0.5% 6.4%
2006
2007
2008
2009
2010
2011
2012
2013E 2014E
2015E
Source: Company filings, WSI Estimates
September 26, 2013
APPENDIX VI: Stock Price Correlation

Fig. 19
20.0% 0.0% -20.0% -40.0% -60.0% -80.0% -100.0% 2008
Hornbeck Offshore Services, Inc. - Relationship with Crude Oil, Brent
Correlation: 0.73
2009
2010
HOS
2011
Brent
2012
Fig. 20
20.0% 0.0% -20.0% -40.0% -60.0% -80.0%
Hornbeck Offshore Services, Inc. - Relationship with Crude Oil, WTI
Correlation : 0.65
-100.0% 2008
2009
2010
HOS
2011
WTI
2012
Fig. 21
20.0% 0.0% -20.0% -40.0% -60.0% -80.0%
Correlation : -0.24
-100.0% 2008
2009
2010
HOS
2011
HH
2012
September 26, 2013
Fig. 22
60.0%
Correlation: 0.55
40.0% 20.0%
0.0%
-20.0% -40.0% -60.0%

-80.0% 2008
2009
2010
HOS
2011
O/S Rig Count
2012
September 26, 2013
Disclosures:
Analyst Certification I Todd P. Scholl, CFA, hereby certify that the views expressed in this research report accurately reflect my personal views about the subject companies and their underlying securities. I further certify that I have not and will not be receiving direct or indirect compensation in exchange for expressing the specific recommendation(s) in this research report. Valuation/Risks Risks to our investment thesis include but are not limited to: a significant decline in the price of Brent crude that would deter future offshore oil and gas investment, catastrophic failure of an offshore drilling rig and/or its safety systems, inability of the company to access the capital markets, and an influx of newbuild OSVs negatively impacting the market's supply/demand balance. Public Companies Mentioned in this Report: Gulfmark Offshore, Inc. (GLF - 51.54 - Hold) Tidewater Inc. (TDW - 58.33 - Buy) Bourbon Offshore (GBB.PA - 19.00 - Buy) General disclosures: Prices are as of the close of 09/25/13. Ratings Distribution (in Percentages) & Investment Banking Disclosure Chart Information Ratings Distribution & Investment Banking Disclosure Rating Buy -rated Hold -rated Sell -rated Count 144 90 1 Ratings Distribution* 61.28 38.30 0.43 Count 34 9 0 Investment Banking** 23.61 10.00 0.00
* Percentage of all Wunderlich-covered stocks assigned an equivalent Buy, Hold, or Sell rating. ** Percentage of companies within Wunderlich-rated Buy, Hold, and Sell categories for which Wunderlich or an associated firm provided investment banking services within the past 12 months.
Rating System: There are three rating categories within the Wunderlich Securities Investment Rating System: Buy, Hold, and Sell. The rating assigned to each company is based on the following criteria. Buy a security which at the time the rating is instituted or reiterated indicates an expectation of a total return of greater than 20% over the next 12-18 months. Hold - a security which at the time the rating is instituted or reiterated indicates an expectation of a total return of plus or minus 5% over the next 12-18 months. Sell a security which at the time the rating is instituted or reiterated indicates an expectation of a negative total return of greater than 10% over the next 12-18 months. The analyst(s) who prepared this report may be compensated in part from a bonus pool that is partially funded by fees received by Wunderlich Securities for providing investment banking services.
September 26, 2013
To request further information regarding the companies discussed in this report, readers may send an email to research@wundernet.com or may write to the Wunderlich Securities Research Department, Wunderlich Securities, Inc., 400 E. Pratt Street, Suite 710, Baltimore, MD, 21202. Other Disclosures Wunderlich Securities, Inc. ("WSI") is a U.S. broker-dealer registered with the U.S. Securities and Exchange Commission and a member of Financial Industry Regulatory Authority and the Securities Investor Protection Corp. This report is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject WSI or any divisions, subsidiaries or affiliates to any registration or licensing requirement within such jurisdiction.
September 26, 2013
All material presented in this report, unless specifically indicated otherwise, is under copyright to WSI. None of the material, nor its content, nor any copy of it, may be altered in any way, transmitted to, copied or distributed to any other party, without the prior express written permission of WSI. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of WSI or its affiliates. The information, tools and material presented in this report are provided to you for information purposes only and are not to be used or considered as an offer or the solicitation of an offer to sell or to buy or subscribe for securities or other financial instruments. WSI may not have taken any steps to ensure that the securities referred to in this report are suitable for any particular investor. WSI will not treat recipients as its customers by virtue of their receiving the report. The investments or services contained or referred to in this report may not be suitable for you and it is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services. Nothing in this report constitutes investment, legal, accounting or tax advice or a representation that any investment or strategy is suitable or appropriate to your individual circumstances or otherwise constitutes a personal recommendation to you. WSI does not offer advice on the tax consequences of investment and you are advised to contact an independent tax adviser. Please note in particular that the bases and levels of taxation may change. WSI believes the information and opinions in the Disclosure Appendix of this report are accurate and complete. Information and opinions presented in the other sections of the report were obtained or derived from sources WSI believes are reliable, but WSI makes no representations as to their accuracy or completeness. Additional information is available upon request. WSI accepts no liability for loss arising from the use of the material presented in this report, except that this exclusion of liability does not apply to the extent that liability arises under specific statutes or regulations applicable to WSI. This report is not to be relied upon in substitution for the exercise of independent judgment. WSI may have issued, and may in the future issue, a trading call regarding this security. This report may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the report refers to website material of WSI, WSI has not reviewed the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to WSIs own website material) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through this report or WSIs website shall be at your own risk.
Balti imore 400 E E. Pratt Street Suite e 720 Balti imore, MD 21202 2 866.2 297.8259 Bost ton 260 F Franklin Street Suite e 510 Boston, MA 02109 892.7151 617.8 Denv ver 1099 9 18th Street Suite e 2850 Denv ver, CO 80202 866.4 493.6588 Houston 0 Post Oak Pkwy 4400 Suite e 1400 Hous ston, TX 77027 888.3 385.6928 sburg Lees 608 S South King St. Suite e 1701 Lees sburg, VA 20175 571.4 403.5612 Mem mphis 6000 0 Poplar Avenue Suite e 150 Mem mphis, TN 38119 800.7 726.0557 Nash hville 3000 0 Meridian Blvd. Suite e 180 Frank klin, TN 37067 866.4 490.7949 w York New One World Financial Center Liberty Street 200 L Suite e 2200 New w York, NY 10281 1 212.4 430.3500 San Francisco Battery Street 275 B Suite e 480 San F Francisco, CA 94 4111 415.4 489.6800 Louis St. L 7711 1 Bonhomme St. Suite e 600 St. L Louis, MO 63105 888.4 432.5671
Equity Research Director of Researc ch James L. Dobson 212.402.2059 9 Consumer Restaurants rrington 615.567.2087 7 Robert M. Der Diversified Industrials ining Environmental Services/Energy Waste/Minerals & Mi Michael E. Ho offman 410.369.2620 0 Brian J. Butler r, CFA 410.369.2614 4 Industrial Distr ribution Brent D. Rake ers, CFA 901.251.2236 6 Anjali R. Vo oria, CFA 901.251.2238 8 Transportation Chaz Jones 901.251.2231 1 Nicholas Bend der, CFA 901.251.2230 0 Energy P Exploration & Production Irene O. Haas 713.403.3980 0 hane, CFA 713.403.3986 6 Mostafa Dahh Exploration & Production P /Onshor re Oilfield Services Jason Wangler r 5 713.403.3985 Master Limited d Partnerships David Askew 713.403.3983 3 ha 713.403.3989 9 Abhishek Sinh Offshore Oilfiel ld Services Todd P. Schol ll, CFA 713.403.3984 4 Utilities/Power Michael Bates s 212.402.2057 7 James L. Dobs son 212.402.2059 9 Financial Services BDCs Merrill Ross 703.669.9255 5 Carmen Bell lacasa 540.277.3371 1 Real Estate Merrill Ross 703.669.9255 5 Craig Kucera 540.277.3366 6 Carmen Bel llacasa 540.277.3371 1 Regional Banks Kevin Reynold ds, CFA 901.251.2229 9 Healthcare Healthcare James Terwilliger 901.251.1353 3 a & Telecommunica ations (TMT) Technology, Media Cable/Satellite Entertainment E 303.965.7966 Matthew Harrigan 6 Communication ns & Networking Eq quipment 415.572.0936 Matthew S. Ro obison 6 Internet & Socia al Media Blake T. Harper, CFA 410.369.2624 4 Software-as-a-S Service Richard K. Ba aldry, CFA 410.369.2633 3 Institutional Equity y Sales Brooke E. Hrimnak 410.369.2609 9 972.772.5066 6 Beth Adams 410.369.2627 7 Clifford Athey 303.260.7902 2 Greg Brown 901.259.9437 7 Sally Chandler Brett Chiles 901.259.9436 6 James Donovan 617.892.7222 2 Paul Gillespie 901.259.9407 7 Thomas Hadley 303.260.7905 5 Haywood Hende erson 901.259.9438 8 John Hohweiler 410.369.2610 0 Blake Kukar 901.259.9411 1 617.892.7225 5 Brian Ludwig Ethel McGlynn 303.260.7904 4 Kyle Norton 212.402.2060 0 Kristi Papanikola aw 212.402.2058 8 Christina Rosso 212.402.2055 5 Thomas S. Steph hens 410.369.2602 2 Claudette Teti 617.892.7224 4 Institutional Equity y Trading Stephen C. Iskalis 303.260.7901 1 John Belgrade 888.257.4152 2 Chuck Berry 303.965.7961 1 410.369.2611 1 Erik Briggs Trip Carey 617.892.7220 0 William R. Kitch hens 901.259.9439 9 Daniel Muhly 410.369.2606 6 r Linden 212.402.2062 2 Jonathan Vonder
jdobson@w wundernet.com
bderrington@ @wundernet.com
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ihaas@wund dernet.com mdahhane@ @wundernet.com jwangler@w wundernet.com daskew@wu undernet.com asinha@wun ndernet.com tscholl@wu undernet.com mbates@wu undernet.com jdobson@wu undernet.com
mross@wun ndernet.com cbellacasa@ @wundernet.com mross@wun ndernet.com ckucera@wu undernet.com cbellacasa@ @wundernet.com kreynolds@ @wundernet.com
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Energy: Offshore Oilfield Services

HORNBECK OFFSHORE SERVICES, INC. (HOS: $57.64)

Initiating Coverage With a Buy - Strong Gulf of Mexico Fueling Growth

Todd P. Scholl, CFA 713.403.3984 tscholl@wundernet.com

Hornbeck Offshore Services, Inc.

September 26, 2013

Todd P. Scholl, CFA 713.403.3984 tscholl@wundernet.com 2

Wunderlich Securities, Inc.

Hornbeck Offshore Services, Inc.

September 26, 2013

Hornbeck Offshore Services, Inc. - Portfolio

Cold Stacked Financials 2012 (USD million ) * Revenue

Todd P. Scholl, CFA 713.403.3984 tscholl@wundernet.com 3

Wunderlich Securities, Inc.

Hornbeck Offshore Services, Inc.

September 26, 2013

US GOM (39) Military 5 OSV 30 MPSV 4 Middle East (2) OSV 2

Mexico (8) OSV - 8 Brazil (5) OSV - 5

Todd P. Scholl, CFA 713.403.3984 tscholl@wundernet.com 4

Wunderlich Securities, Inc.

Hornbeck Offshore Services, Inc.

September 26, 2013

Source: Company filings, WSI Estimate Fig. 4

Todd P. Scholl, CFA 713.403.3984 tscholl@wundernet.com 5

Wunderlich Securities, Inc.

Hornbeck Offshore Services, Inc.

September 26, 2013

2012 Upstream Revenue

Integrated Oil Cos. 45%

Source: Company filings

Todd P. Scholl, CFA 713.403.3984 tscholl@wundernet.com 6

Wunderlich Securities, Inc.

Hornbeck Offshore Services, Inc.

September 26, 2013

Todd P. Scholl, CFA 713.403.3984 tscholl@wundernet.com 7

Wunderlich Securities, Inc.

Hornbeck Offshore Services, Inc.

September 26, 2013

Weights 40% 40% 20%

Todd P. Scholl, CFA 713.403.3984 tscholl@wundernet.com 8

Wunderlich Securities, Inc.

Hornbeck Offshore Services, Inc.

September 26, 2013

APPENDIX I: Discounted Cash Flow

Source: Company filings, WSI Estimate, Bloomberg

Todd P. Scholl, CFA 713.403.3984 tscholl@wundernet.com 9

Wunderlich Securities, Inc.

Hornbeck Offshore Services, Inc.

September 26, 2013

Source: Company filings, WSI Estimates Fig. 10

2013 239 239

Todd P. Scholl, CFA 713.403.3984 tscholl@wundernet.com 10

Wunderlich Securities, Inc.

Hornbeck Offshore Services, Inc.

September 26, 2013

APPENDIX III: Shareholders and Management Team

Source: Company filings

Todd P. Scholl, CFA 713.403.3984 tscholl@wundernet.com 11

Wunderlich Securities, Inc.

Hornbeck Offshore Services, Inc.

September 26, 2013

APPENDIX IV: Financial Model

463.3 49.4 512.7