Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Box Ships, Inc. (NYSE:TEU)

Q1 2013 Earnings Call

April 26, 2013 8:00 AM ET

Executives

Michael Mason – IR

Robert Perri – CFO

Michael Bodouroglou – Chairman, President and CEO

Analysts

Sodas Ginacolis – Morgan Stanley

Keith Mori – Barclays

Operator

Good morning, and welcome to the Box Ships First Quarter 2013 Earnings Conference Call. All participants will be in listen-only mode. (Operator instructions) After today’s presentation, there will be an opportunity to ask questions. (Operator instructions) Please note this event is being recorded. And I would now like to turn the conference over to Mike Mason of Allen & Caron Investor Relations. Please go ahead.

Michael Mason

Thank you. Good morning and welcome to the Box Ships investor conference call to discuss to the financial results for the first quarter of 2013. I’m Mike Mason of Allen & Caron Investor Relations.

Before we start the call, there are a couple of items I need to cover. Many of you received a copy of the press release. It was released after the close of market last night on April 25 at 4:01 PM. If you did not receive a copy of the release, it is posted on Box Ships’ website and in the client section of our website. You may call our office in New York at 212-691-8087 and we will email it to you. It is also posted on Yahoo! Finance and numerous other Internet sites. This call is being broadcast live over the Internet and may be accessed on the Company’s website at www.box-ships.com. A replay of the call will be available through November 16, and may be accessed from North America by calling 877-870-5176 and entering conference number 10028125. International caller should dial 858-384-5517. A replay of the webcast will be available immediately following this call and will continue for seven days.

Certain statements in this conference call may constitute forward-looking statements. Actual results could differ materially from those discussed in the call. Please refer to the complete cautionary statement regarding forward-looking statements in the press release dated April 25, 2013, which can be found on the Company’s website and file with the SEC. The Company will make a presentation on the earnings results and then open the call to Q&A.

I would now like to turn the call over to Mr. Robert Perri, Chief Financial Officer of Box Ships. Good afternoon, Robert.

Robert Perri

Good morning, Michael, and good morning, ladies and gentlemen. Thank you for joining us on today’s conference call. Let me run through the agenda briefly. First we will discuss our first quarter 2013 highlights followed by a brief update on the Company. Then we will give you an update on the industry as a whole and a picture of the current shipping market followed by a more detailed financial update and we’ll close with our investment summary.

Joining me on the call today is our Chairman and CEO, Michael Bodouroglou, and we will be available for questions at the end of the presentation. Please turn to slide number four. Our first quarter 2013 results represent our eighth profitable quarter as a public company. Our adjust time charter revenues during the first was $18.1 million for our nine vessels while our adjusted EBITDA was $11.9 million. We reported adjusted net income of $6.1 million or $0.26 per basic share and $0.23 per diluted share after adjusted for the dilution factor if we were to convert the outstanding preferred shares, an improvement over a year-ago quarter through the increased average number of vessels in our fleet.

More importantly, we announced that our Board of Directors approved our eight quarterly dividend as $0.12 per common share based on our first quarter results payable on May 16 as a shareholders’ record on May 9, which is in line with our previously stated guidance and offers a material dividend yield of 11% annually, and brings our total amount of dividends paid to shareholders to $1.87 per share since our IPO in 2011.

In addition, we were able to extend the maturity of our loan owed to Paragon by one year with quarterly amortization. Finally, in March, we sold 4 million shares of our common stock raising $20 million in net proceeds and our Chairman and CEO continue to show support to the Company by buying 10% of the offering. We expect to use these proceeds for vessel acquisitions but we want to be selective and find the right deal before putting this capital to work.

On slide five, you can see our current operating fleet, the duration of our charters, and their expiration date. Our fleet consists of nine containerships with an aggregate carrying capacity of 43,925 TEU and an average age of 8.2 years which compares favorably to the average age of 10.9 years for the entire containership industry according to Clarkson Research.

Even though the market for the 3,500 TEU vessels remains weeks, our charters are comfortable with our vessels and we have not been served any redelivery notice yet for Box Trader. Every indication is that they may continue to charter this vessel until the fall. We plan to continue to charter our 3,500 TEU vessels for shorter term periods when the two vessels come off charter again later this year maybe for no more than a few months and wait for the market to recover before fixing them for longer periods. Even with these two vessels trading short term, we have 82% charter coverage for the remainder of 2013.

On slide six, we like to point out what we consider our moderate level of leverage. Currently, our total debt is $207 million after repaying $2.3 million since the end of the first quarter of 2013. While our current cash position is $35 million, which means our corresponding net debt is $172 million representing a moderate 42% net debt to total capitalization. We are also actively monitoring our interest rate risk now that the swap rates remain low. And currently we have fixed approximately 36% of our debt and an average swap rate of 0.85% for an average duration of four years.

We will continue to look at the market and continue to fix our interest rate exposure opportunistically. Following the extension of the loan with Paragon until April 2014, we will pay regular quarterly loan installments of $6.7 million until April 2014 and $5.7 million thereafter through the end of 2014. We fund our loan installments from our cash flow from operations and consider the level of our leverage to be moderate as it allows us to pay considerable dividends from our cash flow after these schedules debt repayments.

Now I wish to give you a brief update on the fundamentals of the containership market. On slide 7, the first graph depicts the Shanghai Containerized Freight Index which is an indication on cost to ship a container and the top right depicts the one year time charter rate for 3,500 TEU vessels. During the first quarter of 2013, the containership market saw a slightly higher average freight rates than in the same period for 2012 although the charter rates remained at the same depressed levels.

During the first quarter of 2013, actual freight rates charts for transporting containers were up 9% year-over-year compared to freight rates earned by liner operators in the first quarter of 2012. But the trend seems to be moving sideways. Overall, the container demand increased slightly in the first quarter but there have been no clear signs of a rebound yet. Mid-sized vessels continue to be affected by the cascading effect and may have been cascaded out of the main routes and looked for new homes in some of the minor trade routes. In addition, the weak condition of the charter market has pressured vessel values further and we expect values will remain [inaudible] as long as uncertainty remains in the global economy and lenders remain tight.

Given all this, we have seen rates for vessels above 5,500 TEU strengthen back to solid levels. But vessels below 5,500 TEU continue to be pressured and risk [ph] looks to continue in the near term as the demand improves.

On slide eight, we can discuss supply. On the first quarter of 2013 roughly 160,000 TEUs have been delivered while approximately 100,000 TEUs have been scrapped for net fleet growth of 0.5% year-to-date. It is also important to note that the majority of the deliveries are in the larger Post Panamax sizes above 8,000 TEUs while most of the scrapping is taking place in the smaller, below 5,000 TEU sizes. And we expect another strong year of scrapping for the older, smaller vessels in the container sheep fleet.

Today, the current order book stands at 20% of the total fleet which is now historically low and overall we continue to expect the containership fleet net growth in 2013 to be roughly 6% to 7%, in line with demand growth of around 6% while 2014 it appears that demand will outpace supply once again based on current expectations.

Please turn to slide number nine. Our first quarter 2013 results represent our eight profitable quarter as a public company. And as you can see, revenues increased by 17% as our fleet grew from 7 vessels in the first quarter of 2012 to 9 vessels in the first quarter of 2013. Our adjusted average time charter equivalent rate for the first quarter declined to $22,843 from $25,022 in the first quarter of 2012 due to the decline re-chartering rates of the Box Trader and Box Voyager.

Our adjusted EBITDA and adjusted net income for the first quarter of 2013 were increased to $11.9 million and $6.1 million respectively from the year-ago period while our adjusted basic EPS to $0.26 per share was down period-over-period. In addition, it’s important to note that our amortization of intangibles which is primarily related to the above-below market time charters and share-based compensation expense for the first quarter of 2013 were $1.6 million and $0.5 million respectively. When we adjust our EBITDA and net income, we back out these expenses due to the non-cash major [ph].

On slide 10, I’d like to show you our performance for the first quarter of 2013. Time charter revenues net of commissions and voyage expenses and adjusted for non-cash items were $18.1 million while the adjusted time charter equivalent rate was $22,843 per day. During the first quarter of 2013, our cash vessel operating expenses were $4.3 million compared to $3.5 million during the first quarter of 2012 due to the increased number of vessels. On average, our vessel operating expenses for the first quarter were $5,319 per day compared to $5,495 per day in the first quarter of 2012 and improve 3% year-over-year.

Our total vessel operating expenses or TVOE for the first quarter were also improved and amounted to $7,472 per day compared to $824 per day for the first quarter of 2012. Our EBITDA for the first quarter of 2013 was $11.9 million or $15,226 per day for an EBITDA margin of 67%. Our total debt service for the quarter was $8.8 million which brings our free cash flow for the quarter to $3.1 million or $4,333 per day; and based on this, we are comfortable paying a dividend for the first quarter of $0.12 per share.

Slide 11. In conclusion ladies and gentlemen, we continue to execute on our clear simple business and financial strategy in a sector that is approximately for global economic growth. Since our IPO, we have been actively acquiring tonnage during a period of depressed asset prices and we are positioned in the mid-sized containership segment of the market which we believe has strong fundamentals and prospects going forward.

We have a portfolio of fixed-rate charters of approximately 20 months supported by a solid and diversified group of charters with staggered maturities. In addition, we have a high-quality fleet with an average age of 8.2 years and strong operating performance. We have paid $1.87 per share back to shareholders since our IPO and has an owner that is willing to support the Company as he has proven time and again. The bottom line is that our model provides enough cash flow to pay down debt while maintaining a compelling dividend yield.

With that, I would like to turn the call back over to the operator for any questions you may have. I’d like to also remind you that Michael Bodouroglou will be standing by to answer any questions as well.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator instructions) At this time we will pause momentarily to assemble our roster. And our first question will come from Sodas Ginacolis [ph] of Morgan Stanley. Please go ahead.

Sodas Ginacolis – Morgan Stanley

Yes, good morning, gentlemen. Thank you.

Robert Perri

Good morning, Sodas.

Michael Bodouroglou

Good morning.

Sodas Ginacolis – Morgan Stanley

I would like to ask you about your outlook for the market. Obviously, the market is currently oversupplied but we’ve seen some signs, some positive signs on the larger container ships, as you mentioned there is nothing good for smaller vessels. How long do you think this oversupply will take place and when do you see the market balancing?

Michael Bodouroglou

Well, I certainly agree with your comments [inaudible] regarding the current state of the market.

We are actually expecting – the problem is caused by the oversupply of tonnage in my view and we are expecting this to start changing in favor of demand since the beginning of 2014, at which point we should expect to see some improvement in the rates. We have already see improvements in the rates significant I would say in the larger sizes. And we have also seen some improvement in the very small, at the lowest end of the scale. It is the mid-sized, the smaller and mid-sized sector that is happening the most at the moment. But I expect that this sector will do relatively well going forward largely because the largest, the main incremental growth in the container trade is expected to take place in Asia, enter Asia routes where the port sands [ph] at the moment of cargos [ph] is not so suitable for larger vessels but is more suitable for mid-sized vessels.

Sodas Ginacolis – Morgan Stanley

Just to add to that, there is a lot of discussion about the Panama Canal expansion and the cascading effect. How long do you think that this cascading effect will take place and how will the Panama Canal expansion, will impact the different asset classes?

Michael Bodouroglou

We expect certainly that the Post Panamax vessel especially the modern design as wider [inaudible] vessels would be preferred to the existing Panamax vessels going forward but I expect that this will take years to actually – for the market to actually be able to replace gradually the existing Panamax vessels. It will take years and that is as far as Panama is concerned. I think that still Panamax vessels will be in demand in places like [inaudible] for example when Panama Canal transit is not the major factor.

Sodas Ginacolis – Morgan Stanley

And in terms of acquisitions, potential acquisitions, you recently did an offering. You raised $20 million. This capital, this first capital is targeting, I assume, to buy more vessels. Which categories will you be looking for? Will you be looking for these wide beam vessels that you mentioned, the Post Panamax or you would look to buy some Panamax vessels at the current very low prices?

Michael Bodouroglou

Frankly speaking, the preference would be the Post Panamaxes right now. However, one has to take into account the difference in prices as well as the quality of the tonnage that is available. As far as we are concerned, the main criterion for our investment is to actually write the down the investments below scrap values at the expiration of the charter. We don’t want to go out there and buy a charter fee vessel without having a charter in place with a good signature that reduces our residual value risk. So this is our thinking and this is why we are taking our time to find the right candidate. We don’t want to rush into something that may not be what we consider an optimum acquisition.

Sodas Ginacolis – Morgan Stanley

And taking from your answer about the signature, what is the situation right now among the liners? There is some discussion that liners might face pressure on the freight rates. Do you see any risk in the industry not only among your customers but also the industry overall? And also, how do you think a potential price were between liners will impact you and how likely do you think a price were like that it might be?

Michael Bodouroglou

Yeah, it’s a good question actually. I think that the liner companies have learned their lessons. They fought [inaudible] for market share as soon as the crisis happened and they bled bitterly because this. But they have survived the very sizeable, significant losses that we had in 2009. And at least during the last year and a half, we have not seen any fighting among them. On the contrary, we had seen synergies. And I think that they do realize that the way forward is for them to return to profitability. And they have. I mean, they’re gradually doing that. Many of them were profitable last year and most of them were just marginally – had marginal losses. But I think going forward, they’ve learned their lessons. They want to protect their businesses and industries. I think this is the reason why charters, big liner operators are very hesitant in encouraging owners to place new orders by providing them long-term charters. I think that is a very healthy sign for the industry going forward.

Sodas Ginacolis – Morgan Stanley

I want to ask a little bit about your capital structure. I think you still have a preferred – your capital structure, is there any chance of repaying these with the proceeds that you just received?

Michael Bodouroglou

No, not right now.

Sodas Ginacolis – Morgan Stanley

Okay.

Michael Bodouroglou

Robert, if you want to –

Robert Perri

Yeah, no. No, that’s not the plan right now with what we have. I mean, right now it actually doesn’t make sense. It would actually be diluted if we were to do that so it doesn’t make any sense for us to pay it back at this point in time.

Sodas Ginacolis – Morgan Stanley

And regarding your dividend, I want to ask, how do you think over your dividend versus your free cash flow, obviously, you have plenty of free cash flow to pay your current dividend but I want to ask about the future. We’ve seen some companies that they have been trying to support the dividend with cash-on-hand or increase their leverage. If the market stays at the current levels for an extended period of time and if the cash flow is not there, how would you address that?

Michael Bodouroglou

Well, we are, right now, we feel pretty confident with the dividend that we are paying and that we are guiding and that we will pay. Of course, nobody can actually – no one can preclude what the market is going to be like a year from now but our coverage for 2013 is 84%, so I think this gives us comfort to continue paying what we’ve been paying. And going forward, we’ll see. It depends on what the market does going forward. And this is the reason why we are reviewing our dividend policy on a quarterly basis.

Sodas Ginacolis – Morgan Stanley

Thank you very much, gentlemen.

Michael Bodouroglou

Thank you.

Robert Perri

Thank you.

Operator

(Operator instructions) And our next question comes from Brandon Oglenski of Barclays. Please go ahead.

Keith Mori – Barclays

Hi, good morning, this is Keith Mori for Brandon.

Michael Bodouroglou

Hi.

Keith Mori – Barclays

I had a quick question regarding, I guess, credit markets. I mean, as you look at purchasing a new vessel here, are you speaking with some of the lenders, what’s been the feedbacks, has been margins increasing or anything regarding that?

Michael Bodouroglou

[Inaudible] I guess.

Robert Perri

Hey, Keith. Now, we’ve talked to a few banks and we’ve looked at what’s out there. I mean, margins, they have increased. There’s no doubt about that. Financing has gotten more expensive but I don’t think – it all depends on the vessel, the signature, and the type of financing you’re looking for. And I think we could do something that would be probably around the levels that we’ve done in the past, maybe even a little cheaper if it’s a newer vessel. But generally, I think the terms are still there for the right name and the right project.

Keith Mori – Barclays

Okay, so they’re looking at an asset off. They’re not looking at the portfolio as a group because you have charters coming off next year that’s not impacting anything from the credit side?

Robert Perri

No, I mean, they look at that but, of course, when they look at – they’re more concerned about our own project by project basis.

Keith Mori – Barclays

Okay. And I guess, just thinking it out, pos 12 months here, you say that the liquidity is sufficient for at least the next 12 months. Does that mean that maybe that – will it might need another equity per se at the end of the year to meet Paragon facility or that kind of – is cash-on-hand and cash flow from a new vessel kind of sufficient to meet that?

Robert Perri

I think it’s tough to say anything about that at this point. It’s a bit early for a year out quite honestly. Where we are now, we’re comfortable where we are. It depends on where the market is a year from. It also depends on the type of acquisition that we find and that we purchase. And then we’ll have to review our cash flow at that point in time.

Keith Mori – Barclays

Okay. And then, is there any guidance on dry docking, I guess, going forward, any guidance that you can provide?

Robert Perri

There is, in our Appendix, we have a guidance for dry docking. It’s Appendix line number 14. The OOCL Hong Kong is currently in dry dock and then the next dry dock – we don’t have any more dry docks until the first quarter of ‘14.

Keith Mori – Barclays

Okay. Thank you, gentlemen. Have a good day.

Robert Perri

You’re welcome.

Michael Bodouroglou

Yeah.

Operator

Okay, having no further question, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Perri for any closing remarks.

Robert Perri

Okay. Thank you everyone for your time. We look forward to speaking with you on the next quarterly call. Have a good day.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

Robert Perri

Thank you.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Box Ships' CEO Discusses Q1 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts