Earnings Call Transcript - USEA Q2 2024

Operator, Operator

Thank you for standing by, ladies and gentlemen. And welcome to the United Maritime Corporation Conference Call on the Second Quarter and Six Months Ended the 30th of June 2024, Financial Results. We have with us Mr. Stamatios Tsantanis, Chairman and CEO; and Mr. 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 Tuesday, the 6th of August 2024. The archived webcast of the conference call will soon be made available on the United Maritime website, www.unitedmaritime.gr under the Investors section. 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 second quarter and six months ended the 30th of June 2024 earnings release, which is available on the United Maritime website again, www.unitedmaritime.gr. 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, sir.

Stamatios Tsantanis, Chairman and CEO

Good afternoon. Welcome to United Maritime's conference call to discuss our second quarter and first half of 2024 financial results and recent corporate developments. United Maritime returned to profitability in Q2 with a net income of $0.7 million and net revenues of $12.4 million. The fleet’s average time charter equivalent rate was $17,143, thanks to a strong capesize market. For the first six months, net revenues were $23 million, but we had a net loss of $0.8 million due to Q1 hedging activities. Stavros will provide more details on this. The strong drybulk market since Q4 2023 validates our sector investments, and we are optimistic about high returns. We are declaring a dividend of 7.5 cents per share of cash dividend for Q2 yielding about 13%, and have paid over $1.50 in cash dividends since January 2023. Fleet updates: We delivered the Oasea, a 2010 Kamsarmax, to new owners with profits recognized in Q3. It will be replaced by the Nisea, a 2016 Kamsarmax arriving in October. We continue to seek acquisitions in the drybulk sector meeting our commercial and capital return criteria. The appreciating market value of our bulkers positions us well to reward our shareholders further. New investments in the offshore sector: We acquired a minority stake in a company designing an energy construction vessel for $8.5 million, completing by 2027. This vessel is designed to operate across all major subsea subsegments against a growing demand backdrop and will serve renewable and oil and gas sectors benefiting from increased offshore demand. Aframax time charter: We entered into a time charter on an Aframax crew tanker committing over $300,000 in working capital for up to nine months. This has been made in partnership with a very prominent Aframax pool operator. Commercial developments for Panamax vessels: The Exelixsea extended its charter from August 15 for about 11 to 14 months. The Synthesea extended its charter from October for about 11 to 14 months as well. For capesize vessels: The Goodship charter extends from July 2024 until late 2025, and the Gloriuship is a new 70 to 80-day charter in August in continuation with the existing one at $22,500 a day. For Q3 2024, we estimate a daily time charter equivalent of approximately $18,000 for the blended fleet, with 65% of the days already fixed. Industrial review: The drybulk market is strong, driven by capesize demand and increased grain and coal demand, as well. China's iron ore imports rose 6%, with Brazilian exports also up by 6%. A stable Chinese steel market driven by manufacturing and infrastructure is expected to prevail globally in the next years. Global steel production is expected to remain stable in 2024 and 2025. West African bauxite exports rose 14% in the first half, with further increases expected in the future. Canada’s iron ore exports rose 15% expected in the second half of the year. Long-term trends in aluminum and steel consumption are sustainable driven by energy transition and infrastructure demands. Several mining expansion projects are expected to ensure steady capesize demand. Coal and grain cargo growth provides stability for smaller vessels, with increased inefficiencies reducing effective vessel supply. The drybulk order book is at historically low levels with net fleet growth expected to be below 2% annually for the next two years, favoring a positive market balance. This concludes my initial summary. I will now hand over the call to Stavros for a detailed financial update.

Stavros Gyftakis, Chief Financial Officer

Thanks, Stamatios. Welcome everyone to our earnings call. Let us start by reviewing the main highlights of the financial statements for the second quarter and the six months period that ended on June 30, 2024. Our overall performance saw significant improvement compared to 2023, which I must remind you was a transitory year for United. In the second quarter, our net revenues reached $12.4 million, marking a 24% increase from the same period last year. This growth was driven by an expanded fleet, improved freight rates, and operating leverage. Our adjusted EBITDA for the second quarter was $6.3 million, and we recorded a net income of $0.7 million. In comparison, these figures for 2023 were $2 million and a net loss of $3 million respectively. For the six months period, net revenue totaled $23 million, while adjusted EBITDA rose to $10 million compared to $12.8 million and $0.6 million respectively last year. Despite improved cost of build in the second quarter, we recorded a net loss of $0.8 million for the six-month period ended June 30, 2024. Moving on to our balance sheet: Our cash position at the end of June 2024 was $7.7 million, reflecting the significant CapEx program undertaken during the first six months for drydocking four of our vessels and the advance payment for our new Kamsarmax vessel, Nisea, which is expected to be delivered within the year. All our vessels have returned to service since the beginning of the second half. CapEx is now behind us while we have also delivered the Oasea to her buyers; therefore, our liquidity position has improved significantly as of today. Outstanding debt, which includes liabilities from our bareboating transaction stood at $91.7 million. This translates to a loan-to-value ratio for the fleet of approximately 50%, including the bareboating liabilities. Regarding our debt, we recently concluded a new $18 million sale and leaseback agreement to fund the $17.1 million purchase option of the Synthesea. The financing bears an interest rate of 2.7% over a three-month term and amortizes over a seven-year term through monthly installments of approximately $100,000. We have continuous options to repurchase the vessel at predetermined prices following the second anniversary of the bareboat charter, and a final purchase option of $6.5 million at the end of the bareboat period, which we expect to exercise. Additionally, we recently entered into a $16.5 million loan facility with a prominent lender in Taiwan to finance the exercise of the $12.4 million purchase option for the Chrisea. The principal will amortize with a five-year term through quarterly installments of $0.4 million, and the final balloon payment of $8.5 million. The facility is priced at 2.6% over a three-month term so far. Our financing terms keep improving and we expect this to reflect positively on our future profitability. Regarding our investments and divestment activities that Stamatios mentioned previously, we expect to record an accounting profit of approximately $1.5 million in the third quarter from the sale of the Oasea. Concerning our investment in the offshore sector, we have committed to participate with an amount of up to $8.5 million, which will be called based on certain milestones and conditions in five separate installments over a period of 33 months. This payment schedule aligns with the construction of the ECV unit, allowing for minimum impact on our liquidity. Lastly, concerning our participation in the P&L of the Aframax time charter, we have committed a quarter of a million for the vessel’s working capital. Finally, I would like to express our optimism about future growth and the implementation of a diversified strategy. We anticipate further improvements in our profitability and are committed to rewarding our investors with dividends and share buybacks as appropriate. I would now turn the call back to Stamatios for his concluding remarks.

Stamatios Tsantanis, Chairman and CEO

Thanks, Stavros. Following our successful tanker investment cycle in Q3 2023, which delivered strong returns for our shareholders, we have expanded our fleet to eight drybulk vessels without dilutive capital raisings. Since November 2022, we have declared total cash dividends of over $1.50 per share, and cash dividends are, of course, a significant portion of our current share price. Additionally, we have aggressively retained capital with $6.7 million in common share buybacks at an average price of $1.87 per share. United Maritime is well-positioned to benefit from positive drybulk market trends due to index-linked time charters that provide direct exposure to capesize and panamax market fluctuations. A strong balance sheet allows for leveraged exposure to the sector and the potential for higher returns on capital. We have a proven commitment to rewarding shareholders through substantial capital returns resulting in a high dividend yield. Lastly, I am confident in our recent offshore sector investment, which I believe will also generate higher returns for our company. That completes our call. And I would like to turn the call over to the operator for any questions you may have.

Operator, Operator

Thank you. And now we're going to take our first question, which comes from Tate Sullivan from Maxim Group. Your line is open. Please ask your question.

Tate Sullivan, Analyst

Great. Hey, hi, thank you for having the call and it's great to talk to you again. On the energy construction vessel, Stamatios, can you talk about how you started looking at that market? Has this been a long-term evaluation of that market? And have you done business with a Norwegian partner before?

Stamatios Tsantanis, Chairman and CEO

Good one, Tate, and nice to hear from you again. I believe it's a great diversification opportunity, and it's nothing super substantial. I think it's a good entry point. But Stavros, sitting next to me, is going to give you more color on how we have decided to proceed with that. So, Stavros, if you want to?

Stavros Gyftakis, Chief Financial Officer

Thanks, Stamatios. Yeah, we've started to look at the sector since early this year. Things have changed, I wouldn't say dramatically, but gradually there in terms of the demand. Demand has been increasing. There is very limited supply, and most of the ships have been built more than a decade ago. So there is actual demand for good performance in terms of energy. These types of ships can serve both the oil and gas industry and renewable projects. So we think that the demand will be very robust for the ships going forward. The supply is very limited. Half of the fleet is older than 15 years, and there are actually only a couple of ships that are being built right now. So we identified the specific needs as a good entry point for United in the offshore sector. And as you know, we have decent connections in the market also in Norway. So this project was presented to us. We showed it to our Board, and we all decided consensually that this would be a good opportunity for United to enter the sector.

Tate Sullivan, Analyst

Okay. Great. Thank you for that. And then, $8.5 million is your share, not the total cost of the vessel, correct?

Stavros Gyftakis, Chief Financial Officer

No, no, no. The total cost of the vessel is around $100 million, around $96 million, with around $60 million being financed by debt. So our participation results in a share of around 22% to 25% of the vessel.

Tate Sullivan, Analyst

Okay. Okay. Great. Thank you. And then, the comments about the dry docking of the four vessels in the first half of the year. What portion of those drydockings was in 2Q versus, well, they are all complete? Now there is no cost that will be extended into 3Q, I guess, is my takeaway.

Stavros Gyftakis, Chief Financial Officer

Yes, we have almost nothing for the third and fourth quarter. So, we will have a very good operating fleet for the second half of the year, which I believe is going to improve our cash flow quite significantly. Therefore, we do not anticipate any further costs from the ships that underwent drydocking, and the drybulks also went through upgrading processes, so the ships are running much better than before. I believe that we’re going to have our entire fleet running very smoothly and efficiently in the second half of the year with very limited downtime.

Tate Sullivan, Analyst

Okay. When do you plan to fund that for the first time?

Stavros Gyftakis, Chief Financial Officer

Sorry, Tate, can you please repeat the question because you're breaking up?

Tate Sullivan, Analyst

I apologize, was that the first time you had a lender based in Taiwan?

Stamatios Tsantanis, Chairman and CEO

Hi Tate, we had a similar experience with this lender in synergy. This is related to a previous part of United. So, as you know, the synergies on the management side between the two companies have been effective, and we have worked quite well with this lender. So, they are expressing the willingness to finance United now that the company is maturing and in a more mature stage.

Tate Sullivan, Analyst

Yes. Thank you both.

Stavros Gyftakis, Chief Financial Officer

Thank you, Tate. Have a great day.

Operator, Operator

Thank you. Dear speakers and all for the questions for today. This concludes today's conference call. Thank you for participating. You may now all disconnect. The speakers please stand by.