Safe Bulkers, Inc. (SB) Q1 2024 Earnings Report, Transcript and Summary

Thank you for standing by, ladies and gentlemen, and welcome to the Safe Bulkers Conference Call on the First Quarter 2024 financial results. We have with us Mr. Polys Hajioannou, Chairman and Chief Executive Officer; Dr. Loukas Barmparis, President; and Mr. Konstantinos Adamopoulos, Chief Financial Officer of the company. [Operator Instructions] Following this conference call, if you need any further information on the conference call or on the presentation, please contact Capital Link at (212) 661-7566. I must advise you that this conference is being recorded today, April 30, 2024. The archived webcast of this conference call will soon be made available on the Safe Bulkers website at www.safebulkers.com. 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 statements is contained in the first quarter 2024 earnings release which is also available on the Safe Bulkers website, again, www.safefulkers.com. I would now like to turn the conference call to one of your speakers today, the President of the company, Dr. Loukas Barmparis. Please go ahead, sir.

Good morning to all. I'm Loukas Barmparis, President of Safe Bulkers. In the first quarter of 2024, we operated within a more robust market in comparison with the previous year. In alignment with our environmental, social and governance strategy, we opened one additional Phase III new build. Concurrently, we're continuing to process of modernizing our fleet by divesting 3 other vessels. Moreover, we executed the prepurchase of 4.9 million shares of our common stock, while declaring a dividend of $0.05 per share of common stock. Our strategic focus persist on fostering enduring value for our shareholders and according a resilient capital structure. This commitment is further evidenced by our efforts towards a young and energy-efficient fleet, thereby securing operational excellence in anticipation of forthcoming stringent environmental regulations. We ensure that our capital expenditure is adequately covered by our contracted future revenues fortifying our balance sheet towards a trajectory of sustainable growth. Subsequent to a comprehensive review of our forward-looking statements language presented on Slide 2. Our attention -- the transition to the market update on Slide 4. Noteworthy is the volatility experienced in the cape market segment. It is pertinent to highlight that 4 -- 8 of our Capes are presently period charter, boosting on average remaining charter duration of exceeding 2 years with an average daily rate of approximately $24,400. This provides us with an appreciable degree of cash flow visibility, notwithstanding the prevailing daily market rate today of around $19,500. On the Panamax front, the charter market is at about $17,200. Progressing to Slide 5, we present an overview of our CRB commodity indexes, fluctuation in basic commodities future prices. The geopolitical landscape with tensions in regions such as Middle East, the Red Sea and Ukraine underscores the heightened level of global uncertainty. The global economic recovery is slow but steady. The dry bulk market is expected to remain strong in 2024 with a tightening supply and demand balance attributed to increased cargo volumes, particularly in the Capesize segment driven by higher iron ore shipments from Brazil to China -- in China. Rerouting away from the Red Sea and Panamax Canal has also bolstering demand in smaller segments. There is expectation of virtual control of inflation, despite the delay in interest rate cuts, the expectation of global economy -- for global economic resilience remains strong. The IMF April forecast of 3.2% expansion in global GDP for both 2024 and 2025 is a combined by control of inflationary pressures. According to BIMCO, the forecasted global dry bulk demand growth stands at 3%, increase for 2024. In China, the IMF April projection of GDP growth for 2024 stood at 4.6%. China faces challenges, of course, in growth dynamics driven by internal factors, while the resilience of India robust domestic demand and sustained infrastructure investments emerges as a stabilizing force, means the prevailing economic uncertainty. Let us now proceed to examine the supply side dynamics in Slide 6. The dry bulk order book remains at single-digit percentages. Our outlook remains optimistic regarding the near- to medium-term trajectory of the freight market underscored by the low order book. Approximately 25% of the medium-sized fleet surpasses the 15-year mark, increasing the anticipated impact of fleet ageing and fleet and environmental regulations. Vessels constructed in Japan have superior design efficiencies. 85% Our company's fleet compared to Japanese build vessels surpassing the global average of 40%. The strategic advantage positions our fleet favorable to compete within the environmental-based charter market. As some of the pure dry bulk companies with a substantial Phase III order book, strategically positioned below prevailing market valuations underscore our commitment to compete on the basis of operational and environmental excellence. Fleets comprising our efficiency [indiscernible] and vessels delivered post 2014, we will be able to remain relevant and compete within the regulatory frameworks and greenhouse gas targets. Our recent developments is presented on Slide 8. This includes the declaration of 5% -- $0.05 dividend per common share, divestment of three older vessels. The delivery of 2 Phase III newbuilds alongside the initiation of [indiscernible] 2 additional Phase III vessels. In Slide 9, we present Safe Bulkers key attributes such as our robust management ownership alignment, comfortable leverage, ample liquidity, contracted revenues, a selling track record and the quality and competitiveness of our fleet strategically positioned to leverage on their [indiscernible] landscape remaining through in our commitment to expand by building a resilient company and reward our shareholders. Moving to Slide 10. We present an insight into the advantage of our green fleet click. The breakdown presented in the top right graph and exposed the environmental credentials of our fleet comprising today of 46 vessels with 20 vessels having undergone environmental upgrades, 9 being Phase III and 11 being eco and the remaining 6 scheduled to be upgraded within this year. The bottom graph represents our fleet renewal strategy within -- with the divestment of 12 older vessels, acquisition of 7 secondhand vessels, a steadfast order in comprising of 7 plus 1 phase 3 newbuilds, resulting to a stable 10-year average fleet age over the past 4 years, as confirmed by Slide 11. This trajectory of fleet expansion sells attesting to our commitment towards sustainability. I now pass the floor to our CFO, Konstantinos Adamopoulos for our quarterly financial overview.

Thank you, Loukas, and good morning to everyone. As [indiscernible] noted, during the first quarter of 2024, we operated in a stronger charter market environment compared to the same period in 2023. With increased revenue due to higher charter hires, these earnings from scrubber fitted vessels increased operating expenses and higher interest expenses due to increased interest rates. Let us focus now on our liquidity. Our cash flows and our capital structure, as presented in Slide 13. We are maintaining a comfortable leverage of 34%. Our debt of $534 million remains comparable to our free cash value of $338 million, although our fleet is about 10 years old. Our weighted average interest rate stood at 6.51% for our consolidated debt with a portion of EUR 100 million being fixed at 2.95% coupon in unsecured 5-year bond. We have paid $79 million of our capital expenditure requirement in relation to our existing order book and the remaining capital expenditure at $201 million. Our liquidity and capital resources stand strong at approximately $215 million, which together with a contracted revenue of about $276 million provides flexibility to our management and capital allocation. Furthermore, we have additional borrowing capacity in relation to 7 existing unencumbered vessels and 8 new builds upon their delivery. Moving on to Slide 14, we have quarterly financial highlights for the first quarter of 2024 compared to the same period of 2023. Our adjusted EBITDA for the first quarter of this year stood at $46.8 million compared to $33.1 million for the same period in 2023. Our adjusted earnings per share for the first quarter of 2024 was $0.20, calculated on a weighted average number of 100.4 million shares compared to $0.10 during the same period in 2023 calculated on a weighted average number of 118.4 million shares. In Slide 15, we present our quarterly operational highlights for the first quarter of 2024 in comparison to the same period of 2023. During the first quarter of this year, we operated 47.08 vessels on average, earning a TCE of an average of $18,158 compared to 43.83 vessels earning on average TCE of $15,760 during the same period in 2023. The company's net income for the first quarter of 2024 was $25.3 million compared to net income of $19.3 million during the same period in 2023. Including in Slide 16, we present a list of our first Phase 3 vessels already in our fleet. The global economy is experiencing multiple challenges, persistent inflation, tight financial conditions, Russian invasion in Ukraine, Middle East crisis, all the way on the market outlet. Based on the financial performance, the company's Board of Directors declared a $0.05 dividend per common share. I would like to emphasize that the company is maintaining a healthy cash position of about $82 million or so April 19, 2024. Another $164 million available in the revolving credit facilities. Overall, combined liquidity and capital resources of $246 million. Furthermore, we have contracted noncancelable sport and period time chartered contracts of $274 million, net of commissions and before scrubber revenue, as well as additional borrowing capacity in relation to 7 unencumbered existing ships and 8 new build upon delivery. We believe our strong liquidity and our comfortable leverage will enable us to expand further our fleet while still rewarding our shareholders. This concludes our presentation. We are now ready for the Q&A session.

[Operator Instructions] Our first question comes from the line of Omar Nokta with Jefferies.

A couple of questions for me. Maybe just first off, perhaps on the term charter market. I noticed you fixed the Maria for 4 to 5 years at just under 26,000. That shift looks like a standard cape, 10 years old, but the rate is pretty high relative to clearly, market averages in recent years and also even just forward assessments, whether it's the FFAs or the 1-year, 3-year, 5-year charter market assessment. Is there something specific on the charter? Or is the ship -- is there anything specific on the shift that gives us this type of premium? Or is it simply the going rate now for a 4- to 5-year contract.

Yes. This vessel was with a specific charter on index linked and as the market was rising in Q1. The charter wanted to change it into long-term period charter of fixed rates. So the company took advantage of that requirement and converted this to 4-year charter, which as you said, is above the current market, given that the vessel is Japanese built and environmentally upgraded with various fixtures that have improved recently here consumption. So we managed to achieve for 4 years, minimum 4 years of $25,950 per day, which is a very healthy rate. And the company looked in about time. Also, at the same time, we had another vessel, 2012 build, which we fixed forward for delivery in September of this year for 18 to 24 months at $26,000 a day, which is also a very healthy rate given that the fixture is on forward days. So there was this sort of opportunity, and we had the right vessels at the right time available, and we managed to secure these long charters, which usually typically are available in markets of Capesize vessels.

Yes, yes. And obviously, the market's eased a bit. It's still obviously very solid, generally speaking. How would you characterize the liquidity now in the term market? Would you be able to repeat that type of duration going out 12 to 18 months or 4 years, could you do that? Obviously, the rate may have come down, but is there enough liquidity still to be able to secure that type of visibility?

Look, these sort of charters come at the spots when you have a very hot Cape spot market. So if the spot market is $40,000. So going even higher than $40,000 charter can book contracts, can cover in the futures market, their exposure and such deals are available, so long you have the right vessel available at the right moment. Most of our Capesizes, almost all of them, they are on period charters. Some of them, they expire in '25, some in '26. But in a hot market, let's assume we have a hot market in the second half of the year would be opportunity. One charter wants to extend one year ahead of time. One of the other vessels that put [indiscernible], an existing charter into something longer and bigger. So all the scenarios, we are very hands-on on what's going on in the freight market as we are working in-house all our chartering activities. And when the opportunity arises, we try to take the advantage of such requirements. On the Kamsarmax vessels, of course, the charter durations are much shorter because of because the forward curve is not moving usually that fast as with Capesize rates and on those on the charters are more like one year or 1.5 year duration.

Okay. And then just kind of a separate topic just on the capital allocation. I just wanted to ask what you're thinking in terms of the buyback going forward. You bought a good amount of stock, obviously under the 5 million share authorization from late last year. You did cancel just before finishing the full $5 million, you effectively got close to it, but you didn't do the all of it, but you went ahead and terminated it. I just wanted to get a sense, any reason why you canceled it with a little bit left to go. And any thoughts on a new one? And then also, is it just simply the stock performance being so strong as why you backed off on the buyback recently.

About capital allocation. As you are aware, we -- I mean, we push our earnings from operations towards the new investments because it's very important to renew the fleet and to be competitive in the following years because the new regulations will have a substantial -- will create substantial problems to ships that cannot perform and we don't want to leverage the [indiscernible]. So I want to point out that the leverage today is -- this quarter was 34%. In terms of the buyback program -- the buyback program almost exhausted, but we -- I mean, we all believe in the company that the price of our stock, I'm repeating it's our belief is quite low compared to the asset value. So from time to time, we may take the advantage of the opportunity to initiate an additional buyback program, although this has not been yet decided. And the other one is that at the same time, we reward our shareholders with a steady dividend until now $0.05 per share which is also, I think, reasonable on the basis also of the capital increases because we expect that the stock price -- the price of our stock increasing -- the price of our stock will increase as the new regulations will come and play a major role in the charter market.

Our next question comes from the line of Climent Molins with Value Investor's Edge.

Following up on Omar's question on the repurchases, could you provide some commentary on the average price paid per share and on the amount that was spent post quarter end?

Yes. That's the shift.

Look, we don't declare the exact prices. But what we can say is that we have almost exhausted the existing buyback program. And any decision in the future will depend on the capital allocation that we think it's better. So we can -- for example, I could say that we move towards an acquisition of a new big vessel, as you are aware. So this plays an important role. So we are targeting also the new build market and of course, basically, we believe that our price is quite low compared to the net asset value of our fleet.

Of course, if I may ask, you may see the last quarter, the stock price was between $4 and $5. So you have a low part -- a low price on the bottom part and in the upper part. So it was in that range. The purchase was in the market range. What I may add more what's happening right now in the market and the most important thing to take note of, we have secondhand prices rising in the last 2 quarters, especially in the first quarter of this year with a strong freight market, and we see this on all type of vessels on all the spectrum from Ultramax, Kamsarmax, capesize, all of secondhand price vessels are rising by $3 million, $4 million the last quarter so. And the company is also using some of its older ships, as you have noticed, as cash -- as cashing on those older ships to finance new acquisitions, mainly on new technology Phase III -- IMO Phase III vessels. On the other hand, we have to say that the opportunity for fleet renewal is not unlimited, given the fact that most of the shipyards are now quoting births in second half '27 or even first half '28. So the opportunities are becoming less and fewer and fewer. So you may find the old, but you have good relations with yards in Japan, both every now and then. And this is the opportunity one should not be losing when such a berth is available to take advantage and book the best. That's why we need liquidity, not only for share repurchase, but also to take advantage of those opportunities when they arise. And I don't think in the next 6 to 9 months, something will change. To the contrary, we believe that we are entering into a tighter market. We know that the latest data from Suez Canal is that passages are 66% lower than now than they were in end of November when the crisis become. We see that the strikes on merchant shipping by the Yemen rebels is continuing. So we don't expect this to change anytime soon, which will add fuel to the present freight market. So the company must be ready to make use of its liquidity, not only on share repurchase, but on other opportunities as they arise before this -- all these opportunities are gone because we cannot order a new build for 2028 delivery. You can understand it's 4 years forward is too far away and the cost of redelivery installments is very high. So when the opportunity arises for early berths, we should be able to move quickly.

I also wanted to ask about operating expenses, which increased quarter-over-quarter, although from a very low starting point. Could you provide some commentary on the forecast you have for operating expenses for the remainder of the year?

Usually, the operating expenses that we see in the first quarter a little bit more -- a little increased. And the reason is that because there's substantial supplies of spares that will be used for the dry dockings. And so we may see if you compare the last quarter of the year and the first quarter of this year, we'll see that there is a substantial increase. However, we don't expect in the -- annually, we have a substantially different figure.

There are no further questions in the queue. I'd like to hand the call back to management for closing remarks.

Thank you very much for attending this quarter -- our quarter results webcast, and we're looking forward to discuss again with you in the next quarter. Have a nice day.

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