United Maritime Corporation (USEA) Q2 2023 Earnings Report, Transcript and Summary

Thank you for standing by ladies and gentlemen. And welcome to the United Maritime Corporation Conference Call on the Second Quarter Ended June 30, 2023, 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. [Operator Instructions]. Please be advised that this conference call is being recorded today Thursday, August 3, 2023. The archived webcast of the conference call will soon be made available on the United Maritime website, www.unitedmaritime.gr under the investor 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 ended June 30, 2023 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.

Good afternoon. I would like to welcome everyone to United Maritime earnings conference call, where we're going to discuss our financial performance for the second quarter of 2023, as well as our main corporate and commercial developments. In the second quarter of the year, we agreed to sell our last remaining product tanker vessel, concluding our first investment cycle focused in the tanker sector. The very strong sale price of $37.5 million reflects a return on equity of more than 400% on just this particular ship. Over the past 12 months, the combined profit from the purchase and sale of the four tankers was approximately $48 million net of all expenses resulting in a remarkable rate over 10 -- on the approximately $16 million of equity, employed or 302%. We have used the process from the sales firstly to regrow our fleet, focusing on the dry bulk segment through a total investment of $144 million, spread across seven vessels. And secondly, towards significant shareholder distributions differentiating United Maritime from other shipping spinoff vehicles. For the second quarter of 2023, our both of the directors is approved another dividend of $0.075 per share, while the total dividends declared and or paid have been cash, a $1.23 cents per share, or $9.4 million. We have also recently completed share repurchases for an aggregate amount of $200,000 at an average price of $2.90 per share. In total, over the past 12 months, we have repurchased 3.4 million common shares at an average price of $1.80, that's significantly below where we're trading today. Overall, we have committed more than $15 million in several rewarding initiatives or approximately 2/3 of our current market capitalization. Having said this, as of the end of the quarter, United Maritime's net asset value is an estimated to be more than three times our current market capitalization, and therefore our search continued to be significantly undervalued. As a brief market commentary, 2023 has been so far quite volatile as reduced vessel congestion raised the efficiency of the fleet and the release of a significant number of Panamax and Kamsarmax vessels from the grain corridor in the Black Sea increased the effective vessel supply. Despite vessel demand growing at a healthy pace, driven by strong seaborne and other volumes and high demand for coal and grains, the growth of the effective fleet supply by more than 5% so far exhibited significant pressure on certain rates. Port congestion and idle vessels are at historical low levels leaving hopefully the worst behind us while the order book for new vessels remains at multi-decade lows. As vessel ton-miles continue to grow, I'm optimistic that it's only a matter of time before the market turns positive again. Now let's take a few minutes to expand on United's activity over the past few months. In April, we agreed to charter in a 2015 built Japanese Panamax vessel, which will be renamed Synthesis. The Bareboat charter will have a duration of 12 months and the purchase option at the end of the charter, which if exercised should bring the total acquisition cost to o about $27 million, including all scheduled payments. The Synthesis was delivered to United two days ago on August 1st and will now enter a floating rate on a time charter basis with a global commodity trading company with a duration of 14 months to 16 months. In April we also took delivery of the Currency a 2009 build Japanese Kamsarmax vessel acquired earlier this year and entered an index linked time charter until April, 2024 at a minimum. In June, we entered an agreement to acquire 2011 build Panamax vessel that will be renamed Exelixsea for the purchase price of $17.8 million. Delivery of the vessel to our fleet is expected to take place around the end of August, beginning of September, 2023. As mentioned earlier in May, we agreed to sell a remaining LR2 tanker via Epanastasea for a price of $37.5 million with a vessel scheduled to be delivered to its new owners by mid-August. The accounting profit of about $12 million will be recorded in the third quarter of the year when the vessel will be delivered to her new owners. Upon the completion of all the transactions planned for the next couple of months, we will operate eight ships, split between five Kamsarmax and Panamax vessels and three Capesize vessels. At this point, I would like to highlight that the approximately 55 million equity portion of our $144 million of investments on seven vessels since the beginning of the year has been funded entirely by the proceeds of the tanker sales and cash from operations without resorting to capitalizing transactions which would dilute our shareholders. I am optimistic that the positive prospects of the dry bulk market will put us in a position to generate high retention equity and reward our shareholders accordingly. Right now, would like to pass the call to our CFO Stavros Gyftakis to expand on the financials and the call will return back to me for the conclusions.

Thank you, Stamatios, and welcome everyone to our earnings call. Let us start by reviewing the main highlights of our financial statements for the second quarter of 2023. Net revenue for the quarter was equal to $10 million while we recorded adjusted EBITDA of $2 million in the adjusted net loss of $2.1 million. As mentioned by Stamatios in his opening remarks, the dry bulk market in the second quarter fell short of our expectations, resulting in a Time Charter Equivalent rate of $16,072 for United, which was nevertheless an important sequential improvement versus the $10,300 earned in the first quarter. The drydocking of the Tradership due to repairs impacted our operational results, reducing our overall utilization for the quarter to 93%. As this metric improves going forward along with higher day rates, I am optimistic that it will provide a significant tailwind to financial performance. In the six-month period, United generated revenues of $12.8 million, adjusted EBITDA of $521,000, an adjusted net loss of $5.7 million. These figures are based on a fleet utilization of approximately 89%, capturing the drydocking of the Epanastasea in the Tradership. Moving on to our balance sheet, we had $7.3 million of costs at the end of the quarter and $78.2 million of debt outstanding, which includes liabilities under our bare booting transactions, i.e., future bare boot, high payments, and then underlying purchase options. The book value of the fleet stood at $138 million and stakeholder equity at approximately $59 million. Our cast balance does not reflect the proceeds from the sale of the Epanastasea as we expect to receive those in the third quarter, elevating our cash position to more than $2 million per vessel after concluding the acquisition of the Exelixsea. I'm pleased to see our dry bulk fleet taking shape only using internal generated costs and expect that on a fully delivered basis, the company's loan to value ratio should remain at sustainable levels below 60%. Given the positive drive dry bulk market fundamentals, we have adopted a balance approach to leverage aiming to maximize the retention or equity capital, and circle the distributions while retaining liquidity and balancing flexibility. Regarding individual financing updates, on April 26, we entered into a $12.25 million sale and leaseback agreement with a European lessor to finance part of the acquisition price of the Panamax. The agreement will mature in five years with a purchase obligation of $6.4 million amortization of the charter high principle will take place through 60 monthly payments of approximately a hundred thousand each, while the interest rate will be equal to three-month term SOFR plus 4.25%. Adding now some more details on the bareboat charter agreement for the Synthesea mentioned earlier by Stamatios. The bareboat charter is for 12 months. And the structure includes two down payments for a total of $7 million, a daily bareboat rate of 8,000, and a purchase option of $17.1 million at the end of the bareboat charter. Finally, regarding the financing of the Epanastasea, the existing lenders of the recently sold Panamax, Synthesea has agreed to substitute this vessel with the Exelixsea under the loan facility making essentially available a $15 million loan for this vessel. The balance of the purchase price, which is essentially the advanced payment, has already been funded by our cash reserves. This concludes my review. I would now turn the call back to Stamatios for his concluding remarks. Stamatios?

Thank you, Stavros. After a successful turnover of our initial vessel investment that has generated very strong returns for our shareholders, we have now regrown our fleet without resorting to date today to dilutive capital raisings. We have placed the company in an optimum position to take advantage of another rising market cycle, deriving from a strong demand for raw materials over the historically low investment in new vessels. Closing this call, I would like to say once again, that United Maritime will continue to be a unique value play in the public shipping space, aiming at high and immediate shareholder returns through optimally timed sale and purchase transactions in the shipping sectors with a strongest supply and demand fundamentals. 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. Thank you.

[Operator Instructions]. Our first question will come from a line of Tate Sullivan from Maxim Group. Your line is open.

You mentioned in the press release your second investment cycle focusing on the dry-bulk ships. Do you think this will last through based on the delivery schedules and the bareboat options at the end of the Bareboat charter in acquisition through 2024? And might you shift to another sector eventually as well too, please?

I don't think so. Right now, we will stick to what we have agreed. So, we will play in the larger categories of the dry bulk segment. So Panamax comes Exelixsea and potentially capes, older capes we'll say. So, this is what we believe is the best value proposition right now as an entry point across the mainstream shipping sectors. I don't think we'll be seeking anything in the tankers anytime soon, because the values are overinflated. Other segments I don't really think that we would be looking at right now. So most likely we're going to stick to what we have already done since the beginning of the year.

And Stavros, you may have mentioned the funding are -- is the funding that you mentioned for the Bareboat charter in acquisitions, can you fund those acquisitions with debt before exercising the option?

Yes. The way the Bareboat High -- the way the bareboat agreements have been structured is that basically, the purchase option is a percentage of the value of the ship that we feel comfortable that we can cover purely by raising debt at the time of the exercise of the purchase option. Otherwise, everything is dually funded. We have some maturities coming up early next year on which we are already working, but we are relatively confident that we would not face any issues whatsoever in financing our upcoming obligations.

Yes. I noticed the comment in there that the footnote that, that funding with no dilution to shareholders, so to fund the down payments…

Exactly. And this is something that makes us very proud and differentiates this company from other spinoffs. I mean, we have grown and regrown the fleet without diluting the stakeholders to date.

And then the purchases that you've made in the dry bulk market so far, have they been from different sellers or mostly from Japanese ship owners?

It’s a combination. So, I would say 50% from Japanese sellers or a little bit more, and some from European sellers. So, we like to do business with repetitive deals with the same people. We like doing good quality business with Japan, and we likely continue doing so in the future.

Great. Well, it's great to see the balanced capital allocation between them, using the cash for acquisition, the dividends, and the repurchases. And thank you for all the detail.

Thank you, Dave. Thank you.

Thank you. And with that, this concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.