Earnings Call Transcript - USEA Q3 2023

Operator, Operator

Thank you for standing by, ladies and gentlemen. And welcome to the United Maritime Corporation Conference Call on the Third Quarter Ended September 30, 2023, Financial Results. We have with us Mr. Stamatios Tsantanis, Chairman and CEO; and Mrs. Stavros Gyftakis, Chief Financial Officer of United Maritime Corporation. At this time, all participants are in a listen-only mode. There will be a question-and-answer session. Please be advised that this conference call is being recorded today, Wednesday, November 15, 2023. The archived webcast of the conference call will soon be made available on the United Maritime website. Many of the remarks today contain forward-looking statements based on current expectations. Actual results may differ materially from the results projected from those forward-looking statements. Additional information concerning factors that can cause the actual results to differ materially from those in the forward-looking statement is contained in the third quarter ended September 30, 2023 earnings release, which is available on the United Maritime website. I would now like to turn the conference over to one of your speakers today, the Chairman and CEO of the company, Mr. Stamatios Tsantanis. Please go ahead.

Stamatios Tsantanis, CEO

Good afternoon. I would like to welcome everyone to the United Maritime earnings conference call, where we are going to discuss our financial performance for the third quarter of 2023, as well as our main corporate and commercial developments. Starting with some financial highlights, in the third quarter of 2023, we recorded a very strong net profit of $8.9 million or $0.91 per share on a revenue of $11.7 million for the company’s fleet and a daily time charter equivalent rate of $16,200. During the third quarter, we completed the delivery of our last LR2 tanker to its new owners after agreeing to sell it earlier in the year. United realized a gain of $11.8 million in this transaction, yielding an extraordinary return on our initial equity investment of about 300%. Furthermore, during the quarter, we also completed the delivery of all previously acquired dry bulk vessels. The fourth quarter of 2023 will be the first period with a full dry bulk fleet consisting now of three Capesizes, two Kamsarmaxes, and three Panamax vessels that will be operating on a fully delivered basis. It is important to note that this $144 million investment in 2023 has been financed using cash on hand and debt without resorting to any dilutive capital raising transactions. United Maritime has not done any public equity offerings since its IPO in July 2022. Consistent with our stated dividend policy, for the third quarter, our Board of Directors has approved another cash distribution of $0.075 per share, amounting to an annualized yield of about 14%. During 2023, we have paid out $1.30 per share cash dividend, which represents approximately 63% of our current trading price. Additionally, since the end of the second quarter, we have completed share repurchases for an aggregate amount of about $400,000 at an average price of $2.4 per share. This is almost the maximum amount of shares we could buy under the relevant market rules. In aggregate, since starting our share buybacks in September 2022, we have repurchased 3.5 million common shares or 30% of our shares outstanding at an average price of $1.87 per share. I’m very glad that we have managed to create significant value for our shareholders since our launch in June of 2022. To expand on this point, it is interesting to note that those who participated in our only equity public offering in our IPO in July 2022 at the price of $3.25 per share, the market value of that investment has incurred gains. Now let’s take a few minutes to expand on United’s development since our last quarterly update. In August 2023, we took delivery of the Exelixsea, a Panamax vessel built in Japan in 2011. We acquired the vessel for $17.8 million, that was funded through a secured loan facility and our cash on hand. The vessel has since been chartered to Cargill for a period of 11 to 14 months earning an index-linked daily rate. In August, we took delivery of the 2015 built Japanese Panamax vessel, Synthesea. The bareboat charter will have a duration of 12 months and the purchase option at the end of the charter which, if exercised, would bring the total acquisition cost to about $27 million including all scheduled payments. Since its delivery, the Synthesea has been chartered to Cargill on an index-linked time charter for about 1.5 years. As regards our commercial updates, two of our Capesize vessels commenced employment under new time charter agreements. In September, the good ship entered into a new time charter with a duration of 11 to 13 months. Furthermore, in October, the Tradership started its employment under the extension of its previous time charter with a duration of 11 to 15 months, also index-linked. Entering the fourth quarter, we have converted our index-linked time charters to fixed on all five of our Panamax and Kamsarmax vessels, as well as on one Capesize, which leaves two Capesize vessels open at the market, which has improved considerably. Moving on to our fourth quarter guidance, taking into consideration these conversions, United has now fixed approximately 87% of its operating days at an estimated rate of $14,400 per day. We expect this to improve slightly to an average of $14,500 per day on average this year. Now for a brief market comment, the dry bulk market in 2023 has not performed as initially anticipated. Despite the strong demand for seaborne transportation of iron ore, coal, and bauxite in the first nine months of the year, congestions stood at historically low levels. Coupled with the unwinding of the grain corridor of vessels in the Black Sea, the effective vessel oversupply put severe pressure on the spot market. As congestion in various areas is starting to grow, we have seen significant improvement in most dry bulk markets since September. While in the Panamax segment, we have seen strong demand driven by healthy grain trade and an increase in congestion related to the Panamax canal. Looking ahead in the next two years, demand growth is generally expected to surpass fleet growth, suggesting that we should see a strong market environment. As a result, we firmly believe in the strong market outlook for the sector and we believe that we have done our best to position ourselves accordingly. This concludes my summary of the third quarter developments, and I’m now going to pass the floor to Stavros for a more detailed update on the financials of the company.

Stavros Gyftakis, CFO

Thank you, Stamatios. A warm welcome to everyone also from my side. Let us start by reviewing the main highlights of our financial statements. Net revenue in the third quarter was equal to $11.7 million with our PCE reaching $16,200 per day. Net revenue for the nine-month period was equal to $24.5 million, while PCE was $15,100. Adjusted EBITDA also improved this past quarter, reaching $13.8 million, including the $11.8 million gain from the sale of our last tanker. Just to briefly remind you, our tanker, the Epanastasea, was sold for $37.5 million, representing a return on equity investment of approximately 300%. At the same time, we managed to reduce operating expenses during this nine-month period with OpEx per vessel falling year-on-year by 9%. Our adjusted EBITDA for the period up to September 30th was $14.4 million. With almost 75% of our ownership days hedged for the fourth quarter at an average rate of $14,700 per day, we are prepared for any further volatility in the market during the last quarter of the year. Moving on to our balance sheet, we increased our cash position during the third quarter to $14.3 million, while enrolling our second investment cycle. We have taken delivery of two more Panamax dry bulk vessels, raising the book value of the fleet to $155.5 million. Debt outstanding, which includes liabilities under our bareboat charter transaction, stood at $94.3 million as of September 30th. During the quarter, as Stamatios mentioned, we entered into a 12-month bareboat charter agreement for the Synthesea. According to this agreement, following a total down payment of $5 million, United will be paying a daily charter rate of $8,000, while we have the option to purchase the vessel at the end of the charter period for a price of $17.1 million. The aggregate acquisition cost for the vessel following exercise of the purchase option will be approximately $27 million. Regarding other debt-related updates, following the delivery of Exelixsea, we replaced the collateral under the entrance tranche previously secured by the Epanastasea with this newly delivered vessel. The amended loan tranche has an outstanding balance of $14.5 million and one last installment of $1.5 million payable in December 2023, before it is $13 million balloon which is payable in March 2024. Meanwhile, we have agreed to enter $30 million refinancing for the Capesize vessels of our fleet with a reputable Chinese lessor, and we expect to complete this transaction relatively soon. The financing will lead to three individual sale and leaseback agreements of $10 million per vessel on practically identical terms. The proceeds of this transaction will be used to repay balloon installments of $22.2 million due within the first quarter of 2024 and will add an extra liquidity cushion, which will allow us to be prepared for any market volatility in the coming quarters. Finally, regarding shareholders’ equity, this was equal to $67.4 million. We consider our shares to be undervalued and considerably below our net asset value. On that basis and before concluding my review, I would like to state once again that we remain committed to our shareholders' rewards program through both the distribution of dividends as well as share buybacks. I would now turn the call back to Stamatios for his concluding remarks.

Stamatios Tsantanis, CEO

Thanks, Stavros. After successfully completing our first investment cycle, which was very profitable and delivering strong returns for our shareholders, we have now grown our fleet without resorting to any dilutive capital raisings. So far we have paid total cash dividends of $1.30 per share or $10 million since November 2022, representing a massive cash yield of 63%. We have not made any public equity offerings since our IPO. Not only that, but we have made aggressive stock buybacks for approximately 3.5 million common shares at an average price of $1.87 since Q3 of 2022, creating significant value for shareholders. We have positioned the company optimally to take advantage of another rising market cycle derived from strong demand for raw materials and the lowest order book in many years. From here, I would like to turn the call over to the operator and answer any questions you may have. Operator, please take the call.

Operator, Operator

And our first question comes from Tate Sullivan from Maxim Group. Your line is now open.

Tate Sullivan, Analyst

On the share buyback comment, Stamatios, do you currently have a share repurchase authorization in place, and do you mean that you are limited based on the daily trading volume in the stock from buying as much as you want to, or I’m just looking at the statement in the press release?

Stamatios Tsantanis, CEO

The answer is yes. Unfortunately, we are bound by the liquidity of the stock. We are doing, on many days, the maximum amount of shares that we can repurchase. Obviously, now due to the financial results, we had a blackout, but the intention is to continue at a certain point aggressively again as much as we can to repurchase stock. We hope that in the coming weeks and months that the liquidity is going to pick up and we can do more and more buybacks. But for the time being, we are restricted by the volume, and the rules are the rules, so we cannot overcome that.

Tate Sullivan, Analyst

And average diluted shares is around 9.4 million is outstanding common shares much below that? In case you have that figure handy or can share?

Stavros Gyftakis, CFO

Yes. The diluted number of shares, you said it. It is in line with around 9.3 million on a diluted basis, including all the outstanding warrants.

Tate Sullivan, Analyst

And then with the remaining use of cash, I mean, pro forma for the bareboat charter, $14 million of cash are you continuing to consider acquisitions or happy with the fleet setup going into 2024?

Stamatios Tsantanis, CEO

Right now, we are quite content, having done a significant amount of transactions this year. We sold and bought so many ships, so total investment of more than $140 million, all organic, no equity dilution. So the answer is that we will continue seeking to grow the company on a very accretive basis. If we can do more of the bareboat deals like we have done so far, we will continue doing so. The most cautious thing in our minds is the shareholder benefit that we can make. We don’t issue stock right now, given that we are trading at a discount to NAV. For the time being, we will grow the fleet if we can through similar transactions that we have done so far.

Operator, Operator

And I’m showing no further questions. I would now like to turn the call back over to Stamatios for closing remarks.

Stamatios Tsantanis, CEO

Thank you, Justin. Once again, I would like to thank everyone for attending our call today. We look forward to touching base again in the near future. Thank you very much once again, and you may now disconnect your lines.

Operator, Operator

This concludes today’s conference call. Thanks for participating. You may now disconnect. Speakers, please stand by.