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Box Ships Inc. (NYSE:TEU)

Q1 2014 Earnings Conference Call

May 13, 2014 09:00 ET

Executives

Mike Mason - Allen & Caron Investor Relations

Michael Bodouroglou - Chairman and Chief Executive Officer

Robert Perri - Chief Financial Officer

Analysts

Matthias Detjen - Morgan Stanley

Operator

Good morning, and welcome to the Box Ships’ First Quarter 2014 Results Conference Call and Webcast. All participants will be in a listen-only mode. (Operator Instructions) Please note, this event is being recorded.

I would now like to turn the conference over to Mike Mason. Please go ahead.

Mike Mason - Allen & Caron Investor Relations

Thanks, Gary. Good morning and welcome to the Box Ships investor conference call to discuss the financial results for the first quarter 2014. I am 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 the market last night on March 12 at 4:05 PM Eastern Time. If you do not receive a copy of the release, it is posted on Box Ships’ website and in the clients section of our website. You may call our office in New York at 212-691-8087 and we will e-mail it to you right away. 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 March 20 and maybe accessed from North America by calling 1-877-870-5176 and entering conference number 10046265. International callers should dial 1-858-384-5517. A replay of the webcast will be available immediately following this call and will continue for 30 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 May 12, 2014 which can be found on the company’s website and filed with the SEC. The company will make a presentation on the quarterly results and then open the call to questions.

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

Robert Perri - Chief Financial Officer

Good morning, Michael and good morning everyone. Thank you for joining us on today’s conference call. Let me run through the agenda briefly before I get started. First, we will discuss our first quarter 2014 highlights and recent developments, 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, and finish with a more detailed financial update.

Joining me on the call today is our Chairman and CEO, Michael Bodouroglou, who will be available for the question-and-answer session after I finished our prepared remarks.

Please turn to Slide #4. Our first quarter 2014 is our first quarter at a loss as a result of the continued market weakness coupled by the two drydockings we had during the first quarter. Our adjusted time charter revenues during the quarter was $15.4 million for our nine vessels, while our adjusted EBITDA was $5.9 million. And we reported adjusted net income of $0.3 million. In April 2014, we completed a follow-on offering and a concurrent private placement for 5.5 million units raising approximately $10.4 million. On the chartering front, we extended the charter for Box Trader until the earliest of June 2014 or the latest October 2014 at the same rate. And finally, the Board of Directors authorized a share buyback program of up to $5 million for a period of 12 months due to the ongoing weakness in our common share price.

On Slide 5, you could see our current operating fleet the duration of our charters and their expiration dates. Our fleet consists of nine containerships with an aggregate carrying capacity of 43,925 TEU at an average age of 9.3 years, which compares favorably to the average age of 11 years for the entire containership industry according to Clarksons Research. Following the extension of the charters of four of our vessels, the average remaining term of our charters is 11 months and all of our charters are well-known container liner companies that have been in business for many decades and value our operations.

As of today, the market for Panamax vessels remains very challenging. We plan to continue to charter our vessels for shorter term periods maybe for no more than a few months when the current employment ends later this year and wait for the market to recover before fixing for longer periods.

On Slide 6, we would like to highlight that the company remains focused on strengthening our balance sheet and maintaining manageable level of leverage. Currently our total debt is $170 million, while our current cash position is $29 million, which means our corresponding net debt is $141 million representing a moderate 37% net debt to total capitalization with straight line repayment profile. We also continually monitor our interest rate risk now that the swap rates remain at the low levels.

Now, I would like to give you a brief update on the fundamentals of the containership market. On Slide 7, the top right graph depicts the Shanghai Containerized Freight Index, which is an indication of the costs to ship a container, while the top left graph depicts time charter rates for 3500 and 4400 TEU vessels. During the first quarter of 2014 the container ship market has experienced lower average freight rates than the same period of 2013 and the charter rates remained at the press levels in both periods. Overall, container demand increased slightly in 2013 year-over-year, but there has been no clear signs of a rebound yet as supply continues to outpace demand.

We have seen that rates on vessels in our size classes remain at depressed levels of $6000, $8000 per day and midsize vessels continue to be affected by the cascading affect as many have been moved out of the main routes and are being utilized on some of the minor trade routes. Vessels in lay up continue to be as overhang on the market although the total number of vessels in lay up declined to 3.4% of the current fleet compared to an average of 4.5% of the total fleet earlier in 2014. In addition, the weakness in charter market has continue to pressure vessel values and we expect values will remain depressed as long as charter rates remain weak and there is uncertainty around global growth.

On Slide #8, our first quarter of 2014 represents our first quarter reporting a loss due to the continued weakness in the container ship market and the two scheduled drydockings we had. Our revenues decreased by approximately 20% mainly due to a lower re-chartering rate on Box Queen coupled with the drydockings and associated off-hire days for two of our vessels during the first quarter of 2014, which amounted to $2.4 million. This translated into adjusted average time charter equivalent rate or TCE in the first quarter of $19,434, a decline from TCE of $22,843 in the first quarter of 2013.

Our adjusted EBITDA decreased significantly year-over-year to $5.9 million from $11.9 million in the year ago period and our adjusted net income for the first quarter decreased to $0.3 million from $6.1 million in the year ago period. In addition and it is 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 2014 were $1.2 million and $0.6 million respectively and when we adjust our EBITDA and net income we back out these expense due to their non-cash nature.

On Slide 9, you can see our operating performance. During the first quarter of 2014, our cash vessel operating expenses were $4.6 million compared to $4.3 million during the first quarter of 2013 due to claimable expenses incurred in the first quarter of approximately $0.4 million relating to repairs and other costs incurred in connection with one of our vessels. Our average cash vessel operating expenses for the first quarter of 2014 were $5746 per day compared to $5319 per vessel per day in the first quarter of ’13. Our daily TVOE or total vessel operating expenses for the first quarter increased to $7857 per day compared to $7471 per day in the first quarter a year ago – in 2013 mainly due to the claimable expenses discussed earlier and the higher USD-euro exchange rate, which has an effect on our operating – had a slight effect on operating expenses year-over-year. Our adjusted EBITDA for the first quarter of 2014 was $5.9 million or $8,707 per vessel per day and mainly which translates to an EBITDA margin of 45%. Our total debt service for the quarter was $7.6 million.

On Slide 10, in conclusion we are continuing – we are going through challenging times at Box Ships as some of our above market time charters expired and new rates well below the historical averages. In addition, we have one more vessel coming off charter during this summer and rates remain challenging. We are focused on strengthening our balance sheet and preserving our liquidity while at the same time creating value for our shareholders, which is why given the current weakness in our share price, which has declined over 40% since the end of the first quarter and is trading at a deep discount to NAV. The Board of Directors has decided to implement a share repurchase program up to an amount of $5 million over the next 12 months.

With that, we are ready to open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from Matthias Detjen with Morgan Stanley. Please go ahead.

Matthias Detjen - Morgan Stanley

Good morning gentlemen and thank you for the update. My question is like – is about the capital you raised, so I mean it definitely gives you a better liquidity position. And I was wondering apart from the $5 million buyback, what you were sort of thinking to do the money, if you already thought it would be a point to invest in more ships right now or if you think you should hold out for a bit longer, if you could maybe give us some color there on that?

Michael Bodouroglou

Well, we haven’t made any specific decisions other than the decision to have the share buyback programs. We are monitoring all our options and we are considering what is best for the company going forward, so no specific decisions to be reported right now.

Matthias Detjen - Morgan Stanley

Okay. And how do you see the market, do you think that the market is bottoming out now or do you think it will remain in this trough for a bit longer, could you maybe give us some idea there or do you not really have or do you think that it’s too early to tell?

Michael Bodouroglou

I certainly believe that the market has bottomed out. We have various implications. So, pointing to that direction, I mean, the ships in lay up is lower than it was a year ago. (Sales in the ships was laid), I think those have been a little bit better than before if only by a few $100. There is any implication, I certainly believe that the market has bottomed out and things will be getting better, but at one point, things will be significantly better, meaningfully better than what they are now. It’s hard to tell frankly. The recovery will come, but unfortunately we cannot tell exactly when. That’s why the best thing we can do is to ensure that we remain – the company remains liquid for as long as possible and at the same time, monitor opportunities that will create value in the medium to long-term.

Matthias Detjen - Morgan Stanley

Okay, great. Thank you, gentlemen. That was it for me.

Michael Bodouroglou

Thank you.

Robert Perri

Thank you.

Operator

(Operator Instructions) As we had no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Robert Perri for any closing remarks.

Robert Perri - Chief Financial Officer

Thanks everyone for taking the time to listening to our conference call today and have a great day.

Operator

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

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