Diana Shipping Inc. (DSX) Q3 2019 Earnings Report, Transcript and Summary

Greetings and welcome to the Diana Shipping Third Quarter 2019 Conference Call and Webcast. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host Ed Nebb, Investor Relations. Please go ahead.

Thank you, Kevin, and thanks all of you for joining us for the Diana Shipping Inc. 2019 third quarter conference call. The members of the management team who are with us today include Mr. Simeon Palios, Chairman and Chief Executive Officer; Mr. Anastasios Margaronis, President; Mr. Andreas Michalopoulos, Chief Financial Officer; Mr. Ioannis Zafirakis, Chief Strategy Officer and Secretary; Ms. Semiramis Paliou, Deputy CEO and Chief Operating Officer; and Ms. Maria Dede, Chief Accounting Officer. Before management begins their remarks, let me briefly remind you of the Safe Harbor notice. Certain statements made during this conference call, which are not historical fact are forward-looking statements under the Safe Harbor provisions of the Private Securities Litigation Reform Act. Such forward-looking statements are based on assumptions, expectations, projections, intensions and beliefs that may not prove to be accurate. For a description of the risks uncertainties and other factors that may cause future results to differ from the forward-looking statements, please refer to the company's filings with the Securities and Exchange Commission. And with that, let me turn the call over to Mr. Simeon Palios Chairman and Chief Executive Officer.

Thank you, Ed. Good morning and thank you for joining us today to discuss the results of Diana Shipping Inc. for the third quarter of 2019. During the 2019 third quarter, the company continued to demonstrate its focus on creating shareholder value and prudently managing the business for the long-term. Specifically, we announced and completed several self-tender offers, returning a significant amount of capital to our shareholders. We also continue to actively manage our fleet profile announcing agreements to sell two vessels. In addition, to ensure an orderly succession and continued sound strategic management of the company, we have appointed a Deputy Chief Executive Officer. Turning to our financial results. Diana Shipping Inc. reported net income of $1.8 million and net income attributed to common shareholders of $0.3 million for the third quarter of 2019. This compares to net income of $14.8 million and net income attributed to common stockholders of $13.3 million for the third quarter of 2018. Time charter revenues were $53.5 million for the third quarter of 2019 compared to $61.5 million for the same period of 2018. The decrease in time charter revenues was mainly due to the sale of two vessels in December 2018 and five vessels during the nine months ended September 30, 2019 as well as lower average time charter rates that the company achieved for its vessels during the recent quarter. Turning to the balance sheet. Cash, cash equivalents and restricted cash totaled $149.4 million at September 30, 2019. Long-term debt net of deferred financing costs, including the current portion, was $485.5 million compared to stockholders equity of approximately $603.9 million. Reflecting our ongoing commitment to deliver value to shareholders, the company completed two self-tender offers in July and October, purchasing share valued at a combined $17.5 million. A subsequent self-tender offer to purchase up to 2, 739,726 shares at a price of $3.65 per share was announced in November and will expire at 5 P.M. Eastern Time on December 11, 2019. In connection with our active management of the company's fleet, we have announced agreements to sell two vessels since the start of the 2019 third quarter. Nirefs for a sale price of $6.71 million before commissions and Clio for a sale price of $7.4 million before commissions. These vessels were built between 2001 and 2005 and were among the oldest vessels in the fleet. We will continue to manage our fleet in a responsible manner that promotes a balance of time charter maturities and produces a predictable revenue stream. On October 25, 2019 the company announced the appointment of Ms. Semiramis Paliou to the newly created office of Deputy Chief Executive Officer, effecting immediately. Ms. Paliou has served as a Director of Diana Shipping Inc. since 2015 and as Chief Operating Officer since 2018 and will continue to serve in this role. The appointment was made by the unanimous decision of the Board of Directors upon the recommendation of the company's independent Nominating Committee. It is fully expected that I will continue to serve as Chairman and CEO for the foreseeable future. That said, the Board has recognized the importance of planning for an orderly and seamless succession to ensure that a new generation of senior leadership is prepared to continue the strategic vision and sound management of the company for the future. To summarize, the company has remained profitable and financially strong, while continue to return capital to shareholders and taking steps to continue our strategies for the long-term. With that, I will now turn the call over to our President, Stasi Margaronis, for a perspective on industry conditions. He will then be followed by our Chief Financial Officer, Andreas Michalopoulos, who will provide a more detailed financial overview. Thank you.

Thank you, Simon, and welcome to all the participants of this quarterly conference call of Diana Shipping, Inc. This quarter we will not be looking at detailed levels of the various Baltic Exchange indices as the quarterly movements during the year have been relatively small compared to other quarterly periods. Instead, we will look at large bulk carrier earnings and how they developed in the course of this year. Earnings of Capesize vessels until the end of September 2019 were very slightly below where they stood during the same period in 2018. The average earnings for Panamaxes during the same period in 2019 was $10,935 per day, which was 4% lower than the same period in 2018. According to Gibson ship brokers during the last quarter of this year, Capesize vessel should benefit by mild weather in the major loading areas and from a tighter fleet availability as this will be the peak period for ships to be taken off the market for scrubber fitting. Seaborne iron ore trade is expected to improve with shipments increasing by approximately 3% in ton-miles in 2020. Capesize fleet growth is expected to be around 4% in 2020 and fundamentals in the sector look fairly balanced. The impact of the IMO 2020 sulfur cap could provide some support well into next year. Turning to macroeconomic factors. World growth estimates issued by the IMF for this year are 3.2%, which is down from last year's growth of 3.6%. For next year, the IMF expects world growth to come in at 3.5%. OECD industrial production has been shrinking since June this year, led by sharp declines in Germany and Japan. Latest growth figures issued by the IMF for China stands at 6.2% for this year and 6% for 2020. For the U.S., growth estimates are 2.6% for this year and 1.9% for next year. The euro area is expected to grow by 1.3% this year and by 1.6% in 2020. According to Braemar, in China, the focus of the most recent stimulus has focused on some financial measures such as bank reserve ratios and the development of infrastructure. The focus on the latter will help explain why industrial demand has kept up. In other words, steel production, cement and ore imports. Having said that, we have not seen the economic performance over the past that came with the residential construction and investments. According to Clarksons, bulk carrier ordering during the first three quarters of this year stood at a 158 vessels with an aggregate of 16.8 million tons deadweight. This represents a 50% year-on-year decrease in deadweight terms. In numbers now, 34% of the ships are Panamax vessels. So having looked at the new building ordering, let's look at the order book. According to Clarksons, at the end of September, the total bulk carrier order book stood at 91.7 million tons, representing about 10.6% over the world fleet. There are 268 Panamaxes on order, representing 10.3% of the trading fleet in deadweight terms and 217 capes which are 14.4% of the trading fleet. Most of the tonnage is scheduled for delivery next year. Looking at scrapping now. Even though age is only one of the factors affecting the decision on whether or not to scrap a ship, it is worth noting at this stage the following statistics provided by Banchero Costa. Most Capesize tonnage built before 1999 has already been scrapped. Only 2% of the global trading fleet is over 20 years old and 9% of the fleet is between 15 and 19 years old. It is also interesting to note that 20% of the Capesize trading fleet is less than five years old. On the Panamax side, 9% of the fleet is over 20 years old, while 13% is between 15 and 19 years old. Clarksons report that so far this year about 58 vessels with a combined 5.4 million in deadweight terms have been reported sold for scrap, already surpassing the total figure for scrapping in 2018. Total scrapping this year is estimated to be approximately 7.3 million tons deadweight. From this total tonnage, approximately 4.1 million deadweight will be capes and only 300,000 tons deadweight will be Panamax. The problem with the scrap market generally is that there is only one dominant recycling destination, which is Bangladesh. They lead the way in pricing and demand. Pakistan remains dormant and India concentrates in acquiring special units rather than bidding aggressively on other bulk tonnage. If this continues, it is bound to lead to price distortions down the road as it will be only one market-maker for scrapped tonnage. Looking at the major now commodities and starting with iron ore, iron ore trade is anticipated by Clarksons to grow by 1% this year and by about 2% next year. China's imports are expected to fall 2% this year and increase by 2.2% in 2020. According to Commodore Research, approximately 130 million tons of iron ore is now stockpiled in Chinese ports. On a year-on-year basis, stockpiles are down by 13.5 million tons or approximately 9%. Coking coal now. The overall forecast for demand for seaborne transportation of coking coal is to increase 1% this year and 2% next year. According to Clarksons, India's seaborne coking coal imports for 2020 will grow by 3% to 60 million tons for the first time. In the months ahead, Clarksons predict a sharp decline in U.S coking coal exports as benchmark coking coal prices have declined, notably. On thermal coal now. We have to say that on a worldwide basis, Clarksons report that the exports will increase by 1% this year and by about the same in 2020 to reach just over 1 billion tons. Clarksons report that this year China is expected to import about 4% less thermal coal and about the same for 2020. So far this year, the percentage of Chinese power generated by coal fell to approximately 72.2%, down from approximately 73.3% in 2018, as wind, solar, hydro and nuclear power generation have all shown firm growth. According to Howe Robinson, Vietnam's coal imports hit a record high for a second consecutive month in August, getting very near the 5 million ton mark. Imports were up 13% on the month and rose 221% on the year. According to Commodore Research, the most recent data as of September 23 shows that coal stockpiles at major power plants in China have increased to 83.4 million tons. On a year-on-year basis, stockpiles are up 16% or an increase of about 11.6 million tons. The same analysts report that in India, coal production was sharply down so far this year. During the last three months, production contracted by 15.5 million tons or about 13%. This ongoing production weakness has led to a sharp decline in power plant coal stockpiles, down 48% from their highs of 32 million tons and remains very positive for Indian coal import prospect. Looking at grain cargoes. According to Clarksons, the grain seaborne trade is estimated to increase to 476 million tons in the 2019 season or 1% and to 488 million tons or 2% in 2020. The coarse grain trade has been the fastest growing part of seaborne grain trade so far in 2019, as exports from South America and the Black Sea have been extremely firm. However, U.S seaborne coarse grain exports fell by around a third year-on-year to 24 million tons in the first 7 months of the year as the 2019 to 2020 U.S corn harvest is expected to be the weakest for a number of years. A quick look at the trade war. The U.S China trade war, which has lasted more than a year now has seen both countries impose levies on billions of dollars worth of each other's goods. That has escalated tensions and hurt the global economic outlook. While China remains the largest importer of U.S soybeans, the American Farm Bureau said that exports to China plummeted 53% in the 2018 to 2019 crop year. It is somewhat encouraging to note that in mid September, China intended to increase purchases of soybeans and pork from the U.S after the U.S decided to delay raising tariffs on $250 billion of annual imports from China, from the current 25% to 30% and this should hold until mid-October and possibly the end of the year. Outlook now of our industry. We agree with a view expressed by Clarksons that shipping supply is still manageable. The fleet growth projected at 3.3% in 2019 and just 2% in 2020, and the order book remaining manageable under realistic demand growth assumptions. The retrofitting of scrubbers, particularly to large bulk carriers have helped take a large number of vessels of the market, particularly during the latter part of the year. In this economic environment, the management team of Diana Shipping remain reasonably optimistic about the medium term earnings of large bulk carriers. The strategy of selling older tonnage and continuously improving the strength of the balance sheet with various measures including, but not limited to tender offers to repurchase shares of the company is expected to continue. All this will benefit long-term shareholders, we will see their share of the company gradually increase with obvious benefits in the event the company decides that it will be in shareholders' best interest to reintroduce the payment of a dividend. I will now pass the call to our CFO, Andreas Michalopoulos, who will provide us with the financial highlights of the third quarter of 2019 and the first 9 months of this year. Thank you.

Thank you, Stasi, and good morning. I am pleased to be discussing today with you Diana's operational results for the third quarter and 9 months ended September 30, 2019. Net income and net income attributed to common stockholders amounted to $1.8 million and $0.3 million, respectively, including a $0.7 million loss from sale of vessels. Earnings per common share was 0. Time charter revenues decreased to $53.5 million compared to $61.5 million in the third quarter of 2019. The decrease was due to decreased average time charter rates that we achieved through our vessels during the quarter and decreased revenues due to the sale of two vessels in December 2018 and five vessels in the 9 months ended September 30 2019. Ownership days were 4,027 in the third quarter of 2019, compared to 4,600 in the same quarter of 2018. Fleet utilization was 99.4% compared to 99.5% for the same quarter of 2018 and the daily time charter equivalent rate was $12,682 compared to $12,975 for the same quarter of 2018. Voyage expenses were $3.3 million for the quarter compared to $1.8 million for the same quarter of 2018. The increase in voyage expenses was due to a gain in bunkers of $1.6 million dollars in the third quarter of 2018, which did not exist in the 2019 quarter. Vessel operating expenses amounted to $22 million compared to $22.8 million for the third quarter of 2018 and decreased by 4%. The decrease was due to a 12% decrease in ownership days resulting from the sale of vessels and was partly offset by increases in all operating expense categories, except from supplies and taxes. Daily operating expenses were $5,458 for the third quarter of 2019, compared to $4,958 for the same quarter of 2018, representing an increase of 10%. Depreciation and amortization of deferred charges amounted to $12.1 million. General and administrative expenses were $7.1 million, compared to $6.8 million for the same quarter last year due to increased payroll costs. Management fees to related party were $0.5 million compared to $0.6 million for the same quarter last year. The decrease was due to the decrease in the average number of managed vessels. Interest and finance costs amounted to $7.2 million as in the same quarter of 2018. Interest and other income amounted to $0.8 million compared to $5.5 million for the same quarter last year. The decrease was due to the repayment of the loan-by-Performance Shipping, Inc. For the 9 months ended September 30, 2019 now, net income amounted to $3.4 million and net loss attributed to common stockholders amounted to $0.9 million including a $7.5 million of impairment and an additional $2.8 million loss from sale of vessels. Loss per share was $0.01. Time charter revenues increased to $169.2 million compared to $163.3 million for the 9 months ended September 30, 2018. The increase was attributable to increased average time charter rate that we achieved for our vessels during the period, offset by decreased revenues due to the sale of vessels. Ownership days were 12,526 compared to 13,650 for the same period last year. Fleet utilization was 99.2% compared to 99.1% in the same period of 2018 and the daily time charter equivalent rate was $12,961 compared to $11,736 last year. Voyage expenses were $9.1 million. Vessel operating expenses amounted to $67.2 million compared to $70.3 million for the same period last year. The decrease in operating expenses was due to the decrease in operating days and was partly offset by increased operating expenses in all categories except from taxes. Daily operating expenses in 2019 were $5,367 compared to $5,150 for 2018, representing a 4% increase. Depreciation and amortization of deferred charges amounted to $36.8 million. General and administrative expenses increased to $20.8 million, compared to $20.5 million for the same period of 2018 mainly due to increased payroll cost and officers and directors insurance and was partly offset by bonus taxes. Management fees to related party were $1.6 million compared to $1.8 million in 2018 due to the decreased number of managed vessels by Diana Wilhelmsen. Interest and finance costs amounted to $22.7 million compared to $21.5 million last year. This increase was attributable to increased average interest rates compared to last year, while average debt decreased. Interest and other income amounted to $2.3 million compared to $8 million for the same period last year. This decrease was due to the repayment of the loan-by-Performance Shipping Inc., including a $5 million discount premium. Thank you for your attention. We would be pleased to respond to your questions, and I will turn the call to the operator, who will instruct you as to the procedure for asking questions.

Thank you. [Operator Instructions] Our first question today is coming from Randy Giveans from Jefferies. Your line is now live.

How are you team, Diana? And congrats Semiramis on the new role.

Thank you, Randy.

All right. So, first, obviously it seems like you're focused on share buybacks via tenders as you sell the older vessels I think obviously is a prudent strategy at these equity prices. Now with a strong cash balance, stable operating cash flow through at least 2020, how do you plan on putting the excess cash to work? Is it further tenders, is it fleet renewal, maybe looking at buying back the preferred equity?

Hi, Randy. This is Ioannis Zafirakis speaking. As we have said in the past, as long as our stock price is priced below -- clearly below NAV, buying back our shares is going to pose as a very attractive thing to do. But having said that, we’ve to take into account the public nature of the company and we will certainly do not do anything to jeopardize the public nature of the company by overdoing it with the tender offers. Having said that, we still have plenty of room to grow and the plan is to keep buying back the stock as long as we are under price for the benefit of our shareholders. And from the moment that we end up in a fair value for our stock, we may reintroduce dividend for the excess cash that you referred to.

Perfect. And kind of following up on your mention of the NAV there, where do you see your kind of current NAV?

This is your job not ours. We leave it -- we will leave the NAV calculation to the analysts. We never comment on that, you know that.

Just given the opportunity. No problem. All right.

It's nice try, though.

Had to try. So following on your recent vessel sales, you have two Panamaxes, one Capesize older than 15 years of age. Sold off a lot of the older vessels. What are your fleet growth, maybe renewal plans. And then do you have a preference for Capesizes versus Panamaxes going into 2020?

Ioannis, again here. As we have said in the past, we are, of course, we do not -- we are not attached or we are not in favor of keeping a particular size for our company, for our fleet. We do not see a problem operating 30 vessel instead of 50 provided they’re of the appropriate age. So the renewal is done through the sale of older tonnage. Our average age is good enough as we speak. We are not considering this as a phase to grow the company. And if you are asking us whether we have a preference on Capes or Panamaxes, we have to repeat what we have said in the past, that from the moment the price is not the same, theoretically the difference in price includes the advantages and disadvantages of the various types of vessels. We are not one of these companies that we say it is better to buy a Cape than a Panamax, because you are not comparing apples with apples. We -- like as we have always said, the bigger size of the vessels Panamax upwards, that they have the appropriate volatility for us to take advantage and create wealth for our shareholders.

Okay. That's fair. And then just lastly, a quick modeling question. Can you provide the kind of quarterly debt [amort] [ph] for 2020, or maybe 2021? Just trying to see if there is any big balloons or maturities on the horizon.

No big balloons on the horizon until 2021, Randy. The -- basically for Q4 2019, it's about $10 million, the debt [amort] [ph] and then it's about $40 million, $41 million for the 12 months of 2020.

Excellent. Thanks so much. You all have a good day.

Welcome.

Welcome. Thank you.

Thank you. Our next question today is coming from Ben Nolan from Stifel. Your line is now live.

Yes. Thanks. So I -- maybe I have a little bit more of a longer term sort of how you view the world type of question. As you look forward over, let's say the next decade or so, which clearly with the succession plan you're doing, and look to sort of how you envision your fleet evolving. And I appreciate you're not in the growth phase right now, but at some point maybe ordering new ships, how do you think through what type of propulsion or do you use LNG as a fuel, or do you guys have any opinion as to sort of how the market will evolve and how you would envision Diana being positioned in that evolution?

We -- as you have -- as you know, we’ve always tried to keep up with the evolution and how things are progressing. However, we are not one of these companies that we believe that we should be the first ones to do something. As you have -- as you know, the people that discovered America, they were not the ones that made the money. The settlers did. And we -- what we want to do is to have the appropriate balance sheet and ability to keep up with the changes, but our profile is not so risky to try and do something before the others do it.

Okay. So we will just see, I guess.

Yes. We will cross that bridge when the time comes.

There you go. All right. So then switching over to your time charter contracts, obviously there has been a number of, let's say, one-year contracts that you've done. But as I was going through the fleet list, I noticed there were certainly a handful of ships that have already come off contract, or for which there is not immediate deployment or maybe they were 30-day, 45-day contracts. Curious, if that's positioning as you were talking about sort of with the volatility and timing and so forth, or if there is just not a whole lot of liquidity maybe right now for term contracts. Maybe just what you're seeing in the contract market as it relates to deploying your ships that are coming off contract.

We enter into Q4 2019 in curious situation where we had a little bit more vessels opening than what we had anticipated. And in order to reshuffle the stack, the cards, we had to choose between 3 for a few days, and 1-year time charters, 12 months, 14 months, but we remained put in our strategy to stagger the openings of our vessels and there is nothing more than this. We are trying to reposition again the fleet in such a manner that we do not have a lot of vessels opening at the same time. We are not taking the position that the market is going to pick up soon. Although we have a view as our President explained, we like what we see. We cannot take that for granted, and therefore we have to keep as we’ve done since 2005 with the staggering approach, the physical hedging for our vessels. But as you have noticed, we ended up in the last quarter of this year with a bit more vessels than we wanted to be opening. The IMO 2020 played a role to that. You had a lot of charterers redelivering vessels at the earliest possible days and that was unavoidable on our behalf. And this is why you [saw] [ph] so many vessels to be fixed in this quarter.

Okay. Understood. Very helpful. I appreciate it. Thank you, guys.

Thank you. We reached end of our question-and-answer session. I would like to turn the floor back over to management for any further or closing comments.

Thank you again for your interest in and support of Diana Shipping Inc. We look forward to speaking with you in the future. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day. We thank you for your participation today.