Diana Shipping Inc. (DSX) on Q2 2021 Results - Earnings Call Transcript
Operator: Greetings, and welcome to the Diana Shipping 2021 Second 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 your host, Mr. Ed Nebb of Investor Relations. Thank you, sir. Please go ahead.
Ed Nebb: Thank you, Donna, and thanks to all of you for joining us for the Diana Shipping Inc. 2021 second quarter conference call. The members of the management team who are with us today are Ms. Semiramis Paliou, Chief Executive Officer; Mr. Anastasios Margaronis, President; Mr. Ioannis Zafirakis, Chief Financial Officer, Chief Strategy Officer, Treasurer and Secretary; Mr. Eleftherios 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. second quarter 2021 earnings call. My name is, as Ed mentioned, Semiramis Paliou, the company's CEO. And it is an honor and a privilege to be presenting to you today. Let's turn to Slide number 4. I will briefly update you on the company snapshot as of today. We currently have 36 vessels in the water with a carrying capacity of approximately 4.6 million deadweight tons. This is one vessel less from last quarter due to delivery of the motor vessel Naias to her buyers late last week. We expect our fleet to grow again by one vessel though, after we take delivery of our recent acquisition, the motor vessel, Magnolia, a Japanese built 2011 Kamsarmax vessel. Our fleet utilization has remained at very high level coming in at 99.6% for the second quarter of 2021 as against 98.6% for the first quarter of the year. 31 vessels of our fleet continue to be managed in-house by Diana Shipping Services and five vessels are managed by our 50:50 joint venture with Wilhelmsen Ship Management. At the end of the second quarter, we employed 876 people at sea and the shore. Let's move on to Slide number 5. I will go over the highlights of the second quarter and recent developments. Market conditions have remained robust during the last quarter and continue being positive to this date. While we have seen some volatility, especially in the FFA rates during this period, spot rates remain firm and are close to 10 year highs for every dry bulk segment. Stacy will expand further on the market dynamics and the market acquisitions for the near to medium-term further on in this call. Specifically for our company, in April we put in place an ATM program, which we view as a good tool to have and to use should specific market conditions exist.
Ioannis Zafirakis: Thank you, Semira. I'm very pleased to be discussing today with you our operational results for this quarter and the six months ended June 30, 2021. As you can see in this slide, during the quarter we recorded a net income of $1.4 million that is $0.02 per share. Our time charter revenues increased from $41 million in the second quarter of 2020 to $47 million in the second quarter of 2021, then that represents an increase of about 15% despite the fact that we've had more vessels in the previous quarter. Of course, you understand that this increase is attributed to the increase in the charter rates that we achieved for our vessels compared to what we had in the same quarter last year. At the same time, the whole year's expenses were only $2.3 million compared to $3.8 million for the same quarter in 2020. And that decrease is attributed to some gains that we make from bankers and compared to a loss that we had of $1.6 million last year. We have managed to decrease our operating expenses by 8% to $19.2 million compared to $20.8 million last year and of course this has to do with a less number of vessels in our fleet. At the same time, our general and administrative expenses increased to $7.2 million compared to $6.8 million for the same quarter last year, mainly because we had an increased cost on restricted stock. Interest and finance cost continues to decrease in this quarter and, of course, this is attributable to the decreased interest rates and the decreased average debt of ours.
Anastasios Margaronis: Thank you, Ioannis. I will start with Slide 17, the obvious place to look at the latest developments in the dry bulk carrier earnings in both the spot and period markets. They need to be placed in perspective by looking at the Baltic indices and how they have moved during the last three months or so. Present levels will also be compared with the all-time highs reached about 13 years ago. On April 1, the first trading day of the second quarter, the BDI stood at 2072 on August 2, yesterday, it closed at 3282. The all-time high of this index was 11,793 on May 20, 2008. The Baltic Cape Index was at 2394 on April 1, yesterday it closed at 4,272. This index reached the 19,687 on June 5, 2008. On April 1, the Baltic Panamax Index stood at 2484 and yesterday closed at 3290, the all time high of this index was 11,713 on October 30, 2007.
Semiramis Paliou: Thank you, Stacy. Thank you. Before we move on to the questions and answer session, I would like to sum up the key points as follows. As it has been the case across all market cycles, the company has maintained a robust balance sheet that serves as a guarantee for the seamless continuous operation of the company. Recent moves have reduced even further the cash flow breakeven points as compared to recent years and in conjunction with the prevailing positive dry box market, it allows the company to generate even stronger free cash flows. The company is in the fortunate position that conditions arrived to entertain a potential fleet growth, fleet renewal and our dividend distribution. Lastly, we remain committed in maintaining the disciplined strategy that has been implemented since inception, which has allowed and should continue to support shareholder value generation throughout the various market cycles. Now, I will turn the call over to the operator to commence the question-and-answer session. Thank you.
Operator: Thank you. The floor is now open for questions. Our first question is coming from Randy Giveans of Jefferies. Please go ahead.
Randy Giveans: Howdy team Diana, how is it going?
Semiramis Paliou: Very well. Thank you, Randy.
Randy Giveans: Excellent. All right, well, I guess, the first question, the S&P market for secondhand shifts very robust right now. You recently announced that acquisition of a 2011 built Kamsarmax, but not until February of 2022. So, I guess, why that vessel and why such a delay in delivery? And then are you evaluating any further potential of sales or acquisitions?
Ioannis Zafirakis: The best is that we have done – hi, this is Ioannis Zafirakis.
Randy Giveans: Hi, Ioannis.
Ioannis Zafirakis: If we – I think the most important factor for us is to feel comfortable with the vessels that we were buying. There are not a lot of nice vessels around and it had to do a quality and the type of vessels. And also for us taking such a forward delivery, it is not something that we do usually, but we feel very comfortable with the way we have headed our risk with the existing charters. So to cut the long story short, the reason why we bought this vessel, it has to do with the quality of that vessel. And also, I want you to understand that this doesn't mean that we will start a buying spree or start by investors. These vessel was one of – we've had extra money – we have raised extra money from the new bond issuance, and we think that was one of the good ways to utilize this amount.
Randy Giveans: That's there. And then I guess speaking of another good way to utilize the amount, the tender offer, obviously I think that was a great decision. Any updates around that expiring here in about two weeks? How did you maybe come up with the 4.50 share price and then the 3.3 million share amount?
Ioannis Zafirakis: Again, this is a very important point for us. First of all, you understand that we are there. One day we are trading close to NAV going – trying to go above NAV and suddenly for a reason that we don't understand all this, the dry bulk shipping stocks they dropped 25%, 20%. And we are aware to take advantage of this abnormality. And this is why we acted quickly and we put that tender offer into the market to buy at 4.5, which we considered to a very attractive price for our stock. Of course, you as an analyst you have your calculation regarding the NAV per share, and you see clearly that at 4.50, there is a big discount. So if we find any sales to buy at these numbers, we will consider that to be another good use, another good utilization of money that we have aside. The big picture is that we as a company, we have the ability to do whatever is most appropriate at any time in the cycle. And this is what we have created. We have created the company that we are there to act very quickly and take advantage of all the scenarios that exist at any time.
Randy Giveans: Sure. And I certainly applaud that decision you're showing your nimbleness and taking advantage of what we think is a kind of unforeseen pullback here. So, congrats again, good luck. Thank you.
Ioannis Zafirakis: Thank you.
Ioannis Zafirakis: You're welcome.
Operator: Thank you. Our next question is coming from Omar Nokta of Clarksons Securities. Please go ahead.
Omar Nokta: Yes, thank you. Hi, Ioannis. I just wanted to follow up maybe on Randy's question just regarding the Kamsarmax. It sounds like there's something specific perhaps about that shift that makes it worthwhile with awake, call it six or seven months. Is there any other color you can give us to what makes it – what makes the vessel standout relative to what else is out there?
Eleftherios Papatrifon: I mean – hi, Omar. This is Eleftherios. In reality, I mean, the difference is not six to seven months, because if you're going to go out and then try to buy a similar vessel, if you could find one with prompt delivery then the delivery would probably be September, October, November of this year. So the extra time periods that we waited there was – is only maybe a quarter, maybe three months. On top of that, I mean, I think that the value, the price that we agreed was much lower than what we would have paid before, who had got this specific vessel in with a prompt delivery. To give you an example, an estimate would probably value that vessel with the October delivery of $25 million, so rather than paying in front that extra $3 million, we opted to wait and pay $3 million less with a – for a February delivery. So it was what Ioannis mentioned, the most important was finding the right asset, it was the Japanese built Kamsarmax vessel. We have similar vessels in our fleet. We know that they trade very well. They're very fuel efficient. They don't need a lot of modifications for any of the upcoming rules or the upcoming upgrade in 2023. And on top of that, we've viewed that it's better to save the $3 million rather than pay it upfront and then trying to get it through the charter market for the next three to six months.
Ioannis Zafirakis: Omar, you understand that the only difference of a forward delivery is not what you pay is the risk of chartering the vessel of our bank. That's the difference. Otherwise, if you were, as Eleftherios said, to take delivery of the vessel closure, you would have paid for it. So the only risk that we have taken is that the – at the time of February, when we are going to take delivery where the market is going to be in – whether it's going to be at the level that is going to justify the $22 million. But even for that, we have taken out precautions in case this extreme scenario happens by having kits without existing charters this kind of a risk. For us it's another vessel opening at the beginning of 2022.
Omar Nokta: Yes, thanks for that color. Yes. So – yes, so it just sounds like good quality vessel, a ship that you have operated vessels similar to and thus know what you're getting. Is there any concern at all that – Eleftherios, I appreciate you mentioning it's only three months or so from a normal S&P deal. Is there any concern that as you get closer to that February delivery date that maybe the seller decides that asset values have gone up too much and they'd rather renegotiate. Is there any risk to that that you see?
Eleftherios Papatrifon: We have a contract – an MOA signed. The terms there are definite, and this cannot really happen. If it happens, of course, you have grounds for arbitration and we have a contract, but not usually I have never seen it myself.
Ioannis Zafirakis: And also the sellers are very serious a little bit. Japanese, I mean, they're very – I mean, they…
Eleftherios Papatrifon: All of them are serious in a good market.
Ioannis Zafirakis: In a good market, but especially these specific sellers, they're the big Japanese counterparty. So…
Eleftherios Papatrifon: In my long history in shipping seen this happen very, very rarely, but I do remember that it costs the person reneging on the contract more than he was ever hoping to make by taking the ship at a higher price. So I don't think anybody would seriously consider that.
Omar Nokta: Got it, thank you. And maybe just a separate question, obviously, Diana's longstanding approach to deploying your vessels on a one year contracts, two year and three years unavailable. We have seen a lot of at least from our side, we've noticed a lot of 12 months time charters, but we haven't really seen much in terms of duration going beyond that. Are you beginning to see any inquiry there? We've seen the market stay fairly strong here, six, seven months into the year? Are you seeing any inquiry getting into that two year and three year range? And is that something that's attractive to you?
Ioannis Zafirakis: I think it's a matter of how the FFA, I mean, all those inquiries will be based on the FFA and it's a matter of how the FFA curve flattens in the out years. So I mean – we are definitely, probably one of the companies that would seriously entertain going through for two or three year charters as long as that flattening, that curve behaves a little bit better, a lot this at better rates. So, I think, there is – if you go out there and ask and push, you're probably going to get it two, three years. We might not like it, but we are getting to the point I think that maybe sooner, rather than later, we might see the rates that would be appealing for us to fix for more than a year.
Omar Nokta: Got it, thank you guys.
Eleftherios Papatrifon: In other words, Omar, if you ask for a three-year charter, you will find it. The question is what type of risk profile you want to have accepting a number that doesn't look lucrative. But you have seen us in the past that from the moment we would decide to expand the head in periods of ours; we'll do it without hesitation.
Omar Nokta: Yes. It sounds like, yes, it definitely sounds like there are opportunities, but maybe let the liquidity in the market come first. No, no need to push it? Very good. Alright. Thanks guys.
Eleftherios Papatrifon: Now that you have mentioned that, I think it's an opportune time for me to say that yes, and this applies to all of our strategies. We strongly believe that there would be a point soon in the market where the sentiment, the how sustainable this subside is going to be, is going to be much clearer. We're going to have a clear view about the good market that is coming, and this is why you have seen us discipline in a disciplined manner, waiting before we release all of our weapons as accompanying the market. We think that by wasting, we have done a good job and we are ready and set to go soon because market conditions are going to be the optimum for us to do what we have – what we must do for the sake of our shareholders.
Omar Nokta: Understood. Thank you.
Ioannis Zafirakis: Welcome.
Operator: Our next question is coming from Ben Nolan of Stifel. Please go ahead.
Ben Nolan: Thanks. So I have a few I'll start, actually I start maybe Anas with where you just ended with Omar and tying into Stacy's comments in his prepared remarks, sort of outlining a degree of optimism that you had tapped to the market. as you've sort of always been an efficient market proponent, and that effectively the market evaluate the positives and negatives and equitably prices things. But clearly you sound more bullish and maybe the market or you expect the market to improve and like the FFA curve to improve it. Maybe can you outline, why you are sort of taking – maybe a more aggressive stance or why you feel like maybe the market isn't necessarily efficiently pricing in the, the fundamentals?
Anastasios Margaronis: So I think now we have the appropriate balance sheet, the appropriate size as a company, to be able to have this discipline approach in ways. We think that based on what we see in the market in the short-term, but this is the only thing that someone can see. I think – we think that June is going to come the time where we can do what we know how to do properly in order to create value for our shareholders. And that will give us the opportunity to make the best out of what we have been waiting in a disciplined manner. I keep saying that because I've seen other companies that they are asked to do things before the dust settles. I think now it is more clear what is happening in the market. We are going to see the remaining of the year stronger and the next year beginning very strong. And that would be the best time we think for us to utilize our balance sheet in the best way possible for our shareholders. I cannot give you an assurance about what is going to happen or what we will do, but we haven't taken that decision. But the only thing that is certain and we have demonstrated recently is that we have options to do what we will consider to be the most appropriate risk reward ratio for our shareholders.
Ben Nolan: Okay. Well, let me approach it in a different way. You even there sound like you believe that the market is going to be going higher. The FFA curve for next year is lower than where we are currently by the decent amount, and I'm very low. What do you think the market is missing?
Anastasios Margaronis: The market is missing the fact that the challenges that they are ahead, that they're over estimated. The actual problems that exist in the market, they have created the environment where the market is overreacting on those, and when you have an overreaction to a problem you create an opportunity. This is our belief. We think that the emissions issues, the financing issues the banking issues, they have been all – there is an overreaction in the market that has kept supply at very low levels and provided the demand, stays where it is improves a bit. We are going to see that happening. We're going to see the markets going even higher. People are very relaxed looking at the problem, but they don't understand that, that there has been already another reaction to those both problems.
Ben Nolan: Okay. And then just following, and I apologize for these macro questions. I usually don't like to ask them, but I thought it was an interesting time. Stacy, you outlined sort of where things were in 2008 and for all of you and were there at that time, it was it was a whole lot of fun, but I never thought kind of levels again. Is there anything in the current supply and demand dynamic that either give you some hope that maybe it's possible or is it – is that maybe a little bit too, too optimistic of, or it's unlikely that we would see that sort of a scenario again?
Anastasios Margaronis: Well, to say that it's likely will make us severe over optimistic and very aggressive, which we traditionally never are and never have been. But that it is possible, it is, and I can envisage a scenario for example, where demand continues going up, not in the explosive way that it did in 2008, but in a very healthy manner. And suddenly we realize that even if we want to build ships, we can't build them for the next three years for the reasons that I outlined briefly earlier on. In other words, lots of containers, lots of LNGs being built, et cetera, et cetera. So if we see that we cannot really meet demand, as we have mentioned, and particularly Ioannis has mentioned this in previous conference calls, you don't need an enormous shortage of ships to have rates going up by a lot. So if we see a persistent shortage of bulk carriers and psychology moves the right direction, we could conceivably see numbers of the order that we saw back in 2008. We're not saying it's likely, but the scenario that I outlined could bring us close to those figures, yes.
Ben Nolan: Okay. Great. And then last, just record keeping for me, I believe that you mentioned that you had not been active under the ATM program, is that correct? And if so, what the share count was a few million shares higher. How should we think about the share count, or the basis for the share count prior to the tender offering here?
Anastasios Margaronis: The so found...
Ioannis Zafirakis: No, it's probably the best thing of – the best thing of…
Anastasios Margaronis: Is the same number.
Semiramis Paliou: The same number, that was in the previous quarter.
Ben Nolan: Yes. Okay. Alright. I'll check my numbers there. Thanks.
Anastasios Margaronis: You're welcome.
Operator: There's no additional questions. Thank you at this time. I'd like to turn the floor back over to management for closing comments.
Semiramis Paliou: Thank you all for joining us today. We look forward to talking to you again at our next earnings call. Thank you very much.
Operator: Ladies and gentlemen, thank you for your participation. This concludes today's event. You may disconnect your lines or log off the webcast at this time and have a wonderful day.
