Diana Shipping Inc. (DSX) on Q1 2021 Results - Earnings Call Transcript
Operator: Greetings and welcome to the Diana Shipping, Inc.'s 2021 first quarter earnings conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. . As a reminder, this conference is being recorded. It is now my pleasure to introduce Ed Nebb of Investor Relations. Thank you. You may begin.
Ed Nebb: Thank you Darryl and thanks to all of you for joining us today for the Diana Shipping, Inc. first quarter conference call. The members of the management team who are with us today include Ms. Semiramis Paliou, Chief Executive Officer, Mr. Anastasios Margaronis, President, Mr. Ioannis Zafirakis, Chief Financial Officer, Chief Strategy Officer, Treasurer and Secretary, Mr. Lefteris Papatrifon, Chief Operating Officer and Ms. Maria Dede, Chief Accounting Officer.
Semiramis Paliou: Thank you Ed. Good morning ladies and gentlemen and welcome to Diana Shipping, Inc.'s first quarter 2021 earnings call. My name is Semiramis Paliou, the company's CEO and it is an honor and a privilege to be presenting to you today. As you have probably noticed already, we have altered somewhat the format of our earnings call by adding a slide presentation to accompany our presentation. As a result, we will reference the various slide as we go along and we hope that you will be able to seamlessly follow. Turning to slide four. We thought that as this is the first time that we are presenting via a slide presentation, it will be beneficial to provide a brief company summary. Diana Shipping Inc. is a pure dry bulk company that has been listed continuously on the New York Stock Exchange since 2005. We currently have 37 vessels in the water with a carrying capacity of approximately 4.7 million deadweight tonnage. We have focused on the largest dry bulk vessels with our fleet ranging in size Panamax vessels to Newcastlemaxes. As a result, we are mainly carrying major bulk cargos and for 2020, we transported 35.2 million metric tons with iron ore being the main cargo we carried at 26.2 million metric tons. The majority of our fleet, 31 vessels is managed in-house by Diana Shipping Services and six vessels are managed by a 50/50 joint venture with Wilhelmsen Ship Management. We currently employ over 900 people at sea and the shore. Moving on to slide five. I will go over the highlights of the first quarter and recent developments. This has been a very interesting quarter, characterized by the rapidly improving market conditions that haven't been seen for years. The anticipated Chinese lull expected between the month of January and February 2021 did not materialize. On the contrary, there was strong demand for raw materials. The fiscal policies to stimulate global economic growth, the frenzy to refill depleted inventory, the ban on Australian coal imports to China and the limited supply of new ships, all seem to support the higher prices for commodities and transportation, more specifically for our company.
Ioannis Zafirakis: Thank you Semiramis. During the quarter, we recorded, as we have already shown to you, a net loss attributed to common stockholders of $2.7 million. That's $0.03 per share. As you can see in the slide, during the first quarter, three vessels that we had agreed to selling by 2022 were delivered to the buyers and we agreed to sell one additional vessel, the Naias, expected to be delivered to the buyer latest by July 30, 2021 Following the sale of the vessels in 2020 and those completed in the quarter, ownership days were down to 3,434, compared to 3,801 for the same quarter in 2020. This is why you see the lower revenues of $41.1 million compared to $43.8 for the first quarter of 2020. The voyage expenses also decreased compared to last year to $1.8 million compared to $3.7 million for the same quarter and the decrease in voyage expenses was not only due to decrease commission and lower revenues but also due to a gain of $0.5 million in bunkers compared to a loss of $1.3 millions in the same quarter. During the first quarter, our vessel operating expenses decreased to 418.6 million compared to $21.3 million, mainly due to the decrease in the number of vessels in the fleet. Daily operating expenses also decreased to $5,400 compared to $5,600 for the same quarter in 2020, mainly due to decreased spars and repairs and other operating expense. This decrease was offset by increased crew cost, insurances of supply and supplies of stock and provisions. Our general and administrative expenses decreased to $6.7 million compared to $9.6 million for the same quarter last year, mainly to decreased payroll cost. The interest and finance cost amounted to $4.6 million compared to $6.4 4 million in the same quarter of 2020. This decrease was attributable to the decreased interest expense due to decreased interest rates and decreased other debt compared to the same quarter of 2020. Looking at the balance sheet, you can see that our cost stood at $86 million and our total debt, net of deferred cost, stood at $411 million. That brought our net debt to only $327.8 million. We have another slide for the selected financial and other data for you to look at. I think most of the things are something that we have already said previously. But again, I want to stress or I want to mention the time charter equivalent and time charter rate that we achieved being $11,436 compared to $11,377 and the lower operating expenses that we had for this quarter. It is the first time that we are trying to going to give you an idea about our cash flow breakeven and you can see that based on the results of March 31 and based on the expected drydockings that we are going to have for the remaining of the year, our cash flow breakeven stands at $12,350 approximately which gives you a very good idea on the ability of the company, as our CEO has mentioned earlier, to generate free cash flow for the remaining of the year.
Anastasios Margaronis: Thank you Ioannis. We definitely need to start our short presentation on the current state and future prospects of the dry carrier market by looking at the Baltic Exchange dry bulk indices. This slide that we have here shows that the last five years levels of the above mentioned indices as well as the 12 months time charter rates for Capes and Panamax. We can look at some more detailed statistics to get a better idea of short and long term trend. On January 4, which was the first trading day of 2021, the Baltic Dry Index stood at 1,374 and by May 19 it had reached 2,801. This compares with an all-time high of 11,793 reached on May 20, 2008 which was that nearly exactly 13 years ago to the day. The Baltic Panamax Index this year at 1,364 and closed on May 19, at 2,857. The all-time high for this index was 11,013 reached on October 30, 2007. The Baltic Cape Index was 2,008 on January 4 and closed at 3,785 on May 19. This compares with an all-time high for this index of 19,687 reached on June 5, 2008 which once again was 13 years ago. Here we can add the Cape 5 time charter route average, which on January 4 stood at 16,656 per day and on May 19 had reached 31,392 per day. The Panamax 5 time charter route averaged at the beginning of the year at 12,272 per day and on May 19 stood at 25,709 per day. For comparison purposes, it is worth noting that the all-time high for the slightly differently calculated Panamax 4 T/C routes was 94, 977 in October 2007 and for the Capes, the 4 T/C average was 233,988 in June 2008. On the next slide, we are going to look at the key demand drivers. The macroeconomic statistics and how well the GDP has been moving during the past 20 years or so can be looked at here compared with ton mile growth of major bulk commodities. These are iron ore, grains and soybeans, coal, both thermal and coking and we will also look at the combined volumes of minor bulk about cargo such sulfur, salt, cement, sugar, anthracite, alumina, fertilizers, bauxite and others. According to the IMF and the OECD, world GDP is expected to grow by 6% this year following a drop of 3.3% in 2020 due to the pandemic. This year, China is expected to grow by 8.4% after growing by 2.3% in 2020. During the first quarter of this year, China's gross domestic product grew by an impressive 18.3% year-on-year. The U.S. economy is expected to grow by 6.4% in 2021 while the Euro area is anticipated to grow by 4.4% this year.
Semiramis Paliou: Thank you Stasi. Before we open it up to Q&A session, I would like to sum up as follows. As we have done in the first quarter, we will continue taking advantage of the current positive market fundamentals in striving to enhance shareholder value. We will retain our focus on generating positive free cash flow while at the same time strengthening our balance sheet. We are also maintaining our vigilance and keeping abreast of industry developments, allowing us to take informed and educated decisions as the shipping industry evolves. And last but not least, we remain committed to our disciplined operational and financial strategy that we have implemented since inception which has allowed us to navigate successfully through the various market cycles and now permits us to look into the future with optimism. Now I turn it over to the operator to commence the Q&A session.
Operator: . Our first questions comes from the line of Randy Giveans with Jefferies. Please proceed with your questions.
Randy Giveans: How are the Team Diana? How is it going?
Semiramis Paliou: Hi Randy.
Ioannis Zafirakis: Hi Randy.
Semiramis Paliou: We are doing well. Thank you.
Randy Giveans: Excellent. Great. Yes. First off, so nice to see the slide deck. Certainly a great addition to the earnings call. So kudos on that. Now looking at the business, obviously you have done a great job with asset sales, the tender offer buying at $2.50, share price is over $4 now. Share price has doubled to-date. Congrats on that. So with the market outlook being so attractive, I guess what are your plans for your fleet in terms of sales and acquisitions? And then what are your plans for cash in terms of either further repurchases of shares or maybe a possible dividend later this year?
Ioannis Zafirakis: I will that question. And this is Ioannis, Randy. You know that we have always tried to have lot of options ahead of us and this is exactly the ideal time that we prove so. We have to consider the various options that we have. As you mentioned, either buying back our stock or paying a dividend. I can tell you that with the track record that we have and by the fact that everybody knows how we think, at the moment, in looking at the current the moment in looking at the current market environment that seems like Diana would have the ability of paying a dividend in a sustainable manner for the next quarters or so. This is something that we will have to consider seriously but we have not taken any decisions to that effect as we speak. Of course, we keep trading below NAV, you show the benefit of what we have done and we may continue doing so as well. Buying other vessels is something that you know that we are doing but we are doing after having, after trading above NAV and raising equity at the moment, it will giving back to our shareholders value by doing that. So the answer to your question is that we don't have an answer. But what have though is the ability to choose the right thing at the right time. And you know that we always choose the right thing to do.
Randy Giveans: Great. Yes. I think you certainly have that reputation. So I was just trying to get an insight into what would Diana do next.
Ioannis Zafirakis: Nice try.
Randy Giveans: All right. That's sort of good take-off. Anyway, second question in terms of chartering, let's talk about that. Obviously the market has improved as well. So there's two ways to do this. Do you switch to more short term charters or even spot? Or on the other hand, is there any new interest from charters for 18 months or even a two-year time charters? Or it's pretty much everything as is six to 14 months and just continue to roll those?
Lefteris Papatrifon: Hi Randy. This is Lefteris. I think at Diana, we have been disciplined since early on. And basically we have proven that no matter how the market behaves, we will be disciplined in our approach in how we charter our vessels, especially if nothing really changes, especially we are not making acquisitions at specific numbers where you would need to go and charter out the vessels a little bit longer in order to minimize that risk of those acquisitions. So for the vessels that we have in our fleet right now, I think we will continue chartering them in the same manner. Start getting maturities, with maturities ranging anywhere from six months, sometimes you have to reposition a vessel, sometimes we have an upcoming dry dock that basically would mean that it's probably better for us because our vessel with a shorter duration in order to reposition in it for the dry dock or we could go even longer for a year or a little bit over a year. Now going back to your question of, if charterers are there for longer periods? I think charterers are charterers are always there for longer periods. And the question is, if the owners like the numbers that the charterers are offering. I mean we are entering into territory now. I mean not everyone will be taking the two or three year period deals because some people are a little bit more aggressive than us and then they will always opt out of accepting a lower rate for two or three year period rather than securing what sometimes it's a very attractive rate if you look at the things historically going forward. I think we haven't reached that level yet but I think we might be getting close where at some point in time, not in the very far future, we might see charterers offering based on the FFA catalog. Basically they not doing it based on anything else, offering rates that could be attractive to lock in for the longer duration. But for the time being, the way we are thinking of things it's exactly the way we presented it in our slide that Semiramis went over where we are, on average, going to be chartering vessels somewhere with duration of one-year and then that obviously will provide us with excess cash flow as we speak.
Randy Giveans: Perfect. Good deal. Well, I won't keep asking questions. So I will turnover but also I noticed the sustainability linked loan. Congrats on that. All you are doing on the ESG front has not gone unnoticed. So keep up the great work. Thank you.
Semiramis Paliou: Thank you.
Ioannis Zafirakis: Thank you.
Operator: Thank you. Our next questions come from the line of Greg Lewis with BTIG. Please proceed with your questions.
Greg Lewis: Yes. Hi. Thank you and good afternoon everybody. I was hoping to kind of dig in a little bit with some questions around asset prices. And clearly, asset prices are going higher. Ioannis, you mentioned that they are fully trading at a discount to NAV. Just kind of curious, if you can kind of parcel out, there's been a nice run-up in asset prices. Obviously, everyone is watching steel prices go higher. That, in and of itself, is probably helping lift asset prices. But is there any way to think about the strength balancing, the strength in the market and those increases in asset prices are increases in steel and maybe some of these inflationary environment in terms of the percentages or how you are thinking about those impacting and pushing out the prices higher?
Ioannis Zafirakis: You know, Greg, that there is always a lag between charter rates going up and the values following. The sentiment plays a big part in that. And also how people think that these upturn is going to be sustainable. We have seen an increase in the price but certainly I thin it's fair for someone to believe that we will see further increases in the charter rates and also as regards to prices of the vessels. Talking about the NAV, I would like to point out something that you, of course, the analyst can easily understand but is good for the sake of all the people that are listening in or reading the transcript to explain how well and what a good decision has been the last two years to keep buying back our stock at the discount to NAV. If you were to make a very quick calculation and maybe on a per share basis, if you were under a scenario that we have kept those vessels instead of selling them and not buying back our shares and you try to find NAV on a per share basis today, you would easily notice that it would have been lower by easily $0.30 in what you have in your calculations. So basically what we have done is that now we created value by taking advantage inefficiencies in the capital markets for our shareholders. And that has also taken into account the increase in the prices of the vessels and the increase in our NAV. We keep saying that every time that we buy back our stock at a discount to NAV, we are investing more money in our vessels. We are very happy with what we have done up to now. If I think that there would be a point where we will have higher charter rates, our ability to pay a dividend is going to be clear in there. And then we are going to be in a position to be trading at premiums to NAV. And again you will see us buying at that time more vessels with longer employment. Strengthening the balance sheet it's something that we always do. And that has proven to be the right recipe in order to make nice money in the shipping industry, risk reward wise.
Greg Lewis: Yes. No, absolutely. I have a couple of questions, but I will reach out to you offline. Thanks for the time everybody.
Semiramis Paliou: Thank you.
Ioannis Zafirakis: Thank you.
Operator: Thank you. Our next question comes from the line of Ben Nolan with Stifel. Please proceed with your question.
Ben Nolan: Yes. Thanks and good afternoon to all of you. Well, I have a couple of things. Number one is, obviously as has been discussed, the order book is pretty low but at the same time we have seen increased freight rates, the second hand asset values have appreciated. I know it's not really in the Diana DNA really to be out ordering ships. And you might not would want to do that right now anyway But you guys have your ear to the ground or certainly all of your neighbors are in the similar business as you are. Have you gotten any that there is any cracks in the discipline that we have seen here lately with respect to ordering now that the cash flows are high?
Lefteris Papatrifon: I think we have seen. We have seen them. And obviously as rates move higher and higher, we will see the cracks getting bigger and wider. We have seen some people going out there and ordering vessels. It hasn't really changed the picture that Stasi displayed a little bit better earlier. I think a reason for that has been that a lot of orders have been made on the tanker space earlier on last year and more recently in the container space. I mean we have seen huge orders on the container space in the billions of dollars. So that pretty much gives you an answer of what could potentially come in the dry bulk market if things get very heated. I mean the container market is very heated, then obviously that has led to a lot of ordering. People might say, where you are going to find the orders? Obviously, a lot of premier shipyards might not have any capacity for 2022 and maybe early 2023. But as we have seen in the past, we might see some second tier yards offering capacity at that point in time. I mean fortunately, we haven't seen it yet in our industry but that doesn't mean that we are not going to see it sometime in the future.
Ben Nolan: Okay.
Anastasios Margaronis: Ben, sorry. I just want to add to Lefteris stated that you know that we do not share the opinion of others that there is lack of yards, yards, lack of financing, stuff like this. When the market is good, then the revenues of the vessel justify the investment. You will see the order book coming in.
Semiramis Paliou: Also, Ben, if I could add. The fact that we don't have a clear picture of what next technological solutions will be regarding fuel is a deterrent in order to put new orders at the moment. I think that is working in our favor at the moment.
Ben Nolan: Yes. Absolutely. And I guess and that's been talked about a lot. I guess the question is, at some point there's the concern over the technological changes and what's going to be needed in the future is that overcome by the fact that the near-term cash flows are simply strong enough to justify the investment? We haven't seen it yet but I guess, to your point, we could if people are convinced that they can make money.
Anastasios Margaronis: Yes, Ben.
Semiramis Paliou: Certainly.
Ben Nolan: Yes. So you guys were sort of maybe one of it, maybe not the most outspoken with respect to not installing scrubbers on your ships. Here we are, you are almost a year-and-a-half later and for the better part of that time, it has proven to be probably a good idea. Things seem to be stabilized. Just curious, as you guys have consistent special surveys coming up in dry docking, any thoughts about maybe now that sort of things are settled a bit, installing scrubbers on your ships, is there any demand by your charterers to do that?
Ioannis Zafirakis: We think that we have the opportunity because we have a better use of our free cash flow. And we think that by not investing in scrubbers, we can do a lot of other things as we tried to explain earlier. I think our shareholders will be more than happy seeing a dividend or seeing us buying more vessels or buying back our stock or whatever rather than trying to play the oil price and investing scrubbers trying to make some money throughout the investment. Up to now, our decision has proven to be correct. We keep saying to everybody about installing scrubbers is just an investment but it is highly dependent on oil prices. This is not what we are here for. We are here to create value for our shareholders doing shipping and taking advantage of the charter market's inefficiencies. And up to now, we have done a good job.
Ben Nolan: Right. No, I sort of thought that would be your answer. And last question for me on capital allocation. You mentioned earlier about all of your options. I am curious if you consider, I believe the preferreds are callable soon and at some point those bonds are callable soon. If the cash flows build, any thoughts yet about possibly calling those back or refinancing, any other things with probably have a better cost of capital?
Ioannis Zafirakis: We prefer that they are perpetual. They are perpetual for a reason. And at the moment, we have another option to repay the existing bond which is maturing in 2023. Knowing ns well and this why you do the question is that we are always very proactive as regards to managing our cash flow and our maturities. So the only thing I can say to you that it is in our radar to see what we may do with maturities in 2023which is the bond, mainly the bond at that time. As you noticed, with the new facility that we did recently, we basically eliminated the maturities even for 2022, if you take into account the fact that there is an option in the Nordea loan to go to 2023 and 2024. So basically again, we have created the appropriate environment to have as better cash flow as possible for our shareholders.
Ben Nolan: Right. Okay I appreciate it. That does it for me. I appreciate it. Thanks guys.
Ioannis Zafirakis: You are welcome.
Operator: Thank you. Our next question comes from the line of Omar Nokta with Clarksons Platou Securities. Please proceed with your question.
Omar Nokta: Hi. Thank you. Hi guys. Good afternoon. I just wanted to follow-up on the previous topic or the main sort of discussion points of use of capital and your fleet makeup. Ioannis, you mentioned wanting to keep us guessing as to what your next moves are. But over the past several years, you have been trading below NAV and you have sold ships, used the proceeds to buy stock and created value along that way. But you still do trade at a discount to NAV today. And so I just wanted to maybe get your perspective as you see things today, you are at a discount, asset values has continued to push higher. Do you see Diana at this point continuing to be a seller? Or more just sitting back and collecting cash?
Ioannis Zafirakis: A seller of vessels, you are asking?
Omar Nokta: Yes.
Ioannis Zafirakis: A seller of vessels, it doesn't mean anything till we know what we are going to be doing with the money. So making a thing into cash and then think again and an asset again, it makes no difference. But yes, we are seeing that we have reached a point where there is a lot of things we can do with the vessel, with the older vessels of ours and that we may not be selling them. But I have tried really hard not to give you an idea on how we are thinking. But stay tuned and we think that there are a lot of things we can do, even with the vessels that we have, the older vessels of ours.
Omar Nokta: Okay. That's interesting. So I guess I am going to infer basically from your commentary that for now the Diana is not interested in selling ships.
Ioannis Zafirakis: Correct.
Omar Nokta: And I guess that is going to bring me to my sort of like a follow-up to that which is, just your market footprint and critical mass, you had 50 ships a few years ago. You are down to 36 after you sell the Naias. Do you feel that with a fleet size of 36 ships, is that enough capacity to still feel very much involved in the game and very relevant in the business? Or could it even be smaller than that and you would still feel comfortable?
Lefteris Papatrifon: This is Lefteris. Hi Omar. I think having a fleet of 35 vessels plus, it's definitely a fleet that has scale, okay. It's not the 50 or 60 vessel fleet, but it's still, you are relevant. We are in the market. We have a good name. obviously, we are going to, going back to what Ioannis said, yes, we might be under NAV right now. But we are chasing it at this point in time with where asset values going up on a daily basis. But our plan is to try to change that. And once we do and if it makes sense, we might look for ways to renew the fleet. But for the time being, we are content with the fleet that we have. I mean we still have scale. We still have size. We have our relationship, our chartering relationships, our relationships with various vendors and suppliers out there. So size should not really, I mean that's my personal view and many people might feel different, should not be the end game. If you are going to have 60, 70 or 100 vessels, it should be, you have to be profitable and you have to be there.
Ioannis Zafirakis: Said differently to what Lefteris says, exactly the same but in a different manner, what is critical is the balance sheet more than the actual size of the fleet. And you have seen that in the past. Being having a strong balance sheet was a much better thing to have in the full cycle rather than a big fleet. You know what I mean. I don't want to mention names.
Omar Nokta: Yes. It's pretty clear. That's very clear. Yes. Well, thank you. I am looking forward to seeing what you guys have up your sleeve. I will leave it there.
Semiramis Paliou: Thank you.
Operator: Thank you. There are no further questions at this time. I would like to turn the call back over to management for any closing comments.
Semiramis Paliou: So thank you for joining us today and we look forward to talking to you again at our next financial earnings call.
Operator: Thank you for your participation. This does conclude today's teleconference. You may disconnect your lines at this time. Have a great day.
