USEA - United Maritime Corporation (USEA) Q4 2022 Earnings Call Transcript

United Maritime Corporation (USEA)

Q4 2022 Earnings Conference Call

February 22, 2023, 10:00 AM ET

Company Participants

Stamatios Tsantanis - Chairman, CEO and Founder

Stavros Gyftakis - CFO

Conference Call Participants

Tate Sullivan - Maxim

Presentation

Operator

This call may contain forward-looking statements. Good day and thank you for standing by. Welcome to the United Maritime Corporation's 2022 Fourth Quarter Year End Financial Results Webcast. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded.

I would now like to turn the conference over to your speaker today. Stamatios Tsantanis, Chairman, CEO and Founder, please go ahead.

Stamatios Tsantanis

Good afternoon. I would like to welcome everyone to United Maritime's earnings conference call. Today we're presenting the financial figures for the fourth quarter of 2022 and the period from the commencement of operations on July 6, 2022, until December 31, 2022, as well as our main corporate developments.

First, I'm very pleased to announce the initiation of a regular quarterly cash dividend of $0.075 per share. This distribution is fully consistent with our strategy of rewarding our shareholders and enhancing shareholder value. This comes in addition to the massive special dividend of $1 per share that we announced last November, and we paid in January, as well as accretion we created with the two buyback programs we successfully completed in September and October of last year.

As detailed in our third quarter results, United Maritime was established in order to capitalize on opportunities across major shipping sectors. We have already delivered very substantial returns to our shareholders. With the acquisition of four tanker vessels, three of which have already been sold, the overall return of equity exceeded 350% in less than six months.

I'm extremely pleased with the timing and results of our first major investment as we were able to source and execute these transactions in a swift and efficient manner. And I'm now looking forward to achieving similar success in our next endeavors. I strongly believe that are, flexible investment strategy will continue to create value for our shareholders.

Contrary to many of our peers, as we have already demonstrated in Q4, we aim to distribute these profits to our shareholders by returning capital in the form of share buybacks and dividends without perpetual dilutions. In the fourth quarter of 2022, we recorded revenue of $14.9 million. Adjusted EBITDA was $42.3 million, and adjusted net income was $39.8 million, mainly driven by the profitable sale of the three tanker vessels.

Our daily time charter equivalent in Q4 was $32,150. From the commencement of operations on July 6, until the end of the year, United Maritime achieved net profit of $37.4 million. Our profit during the period is equivalent of approximately 145% of our current market cap, which underlines the appreciation potential in our share price, which is currently significantly undervalued.

Our fleet's commercial performance was strong as we achieved a net daily time charter equivalent rate of $28,750. Staying true to our commitment to return capital to our shareholders, during the period since our public listing in July, we have deployed approximately $17.4 million in cash dividends and buybacks consisting of a special cash dividend of $1 per share, as well as a 25% reduction in our shares outstanding through stock repurchases in the open market.

Additionally, in November of 2022, we also redeemed the $10 million of convertible preferred shares, which were held by Synergy, reducing the risk of dilution for our shareholders. We are now launching a regular cash dividend of $0.075 per quarter, which equates to 10% annualized dividend yield based on our surprise, trending around $3 recently.

Turning into fleet development, following a recent highly profitable sale of three of our tankers, we have entered into a five vessel acquisition agreement that will exceed $98 million. This consists of two capesize dry bulk vessels, one of which has already been delivered to our company in February, while the second one is also expected within the month. The Goodship and the Tradership were built in 2005 and 2006, respectively in high quality Japanese shipyards and are currently employed by major capesize operators on index linked time charters.

In February 2023, we also agreed to acquire two Kamsarmax vessels both vessels will be delivered by the end of April. The Cretansea was built in 2009 in Japan, and the Oasea was built in 2010 in the first class Japanese shipyard in China. Finally, we recently agreed to charter on bareboat basis, the Panamax Chrisea, built in 2013 in Japan for a period of 18 months.

According to the agreement, United has the option to purchase the vessel upon the completion of the bareboat charter. This is a favorable arrangement, as it allows to, grow our operating fleet of dry cargo vessels without substantial day one capital expenses. Contrary to other peers, it is very important to highlight that our $98 million investment plan will be executed without diluting our shareholders.

Given the favorable fundamentals for larger bulkers and the fact that vessel prices have fallen by more than 25% since the summer of 2022, we believe that there are strong prospects generate substantial returns on these new vessels.

I will now pass the call to our CFO; Stavros Gyftakis who is going to discuss more thoroughly our financial results. I will come back at the end of the call for some closing remarks shortly. Stavros, please go ahead.

Stavros Gyftakis

Thank you, Stamatios.

I would like to welcome everyone from my side to our earnings call for the fourth quarter and the period since the commencement of operations on July 6, 2022 to December 31, 2022. Let us start by reviewing the main highlights of our financial statements before discussing some for our strategic moves in the financing and shareholders rewards fronts.

For the fourth quarter, the company generated net revenues of $14.9 million while for the whole period of operations this year, net revenues reached $22.8 million. This led to a time charter equivalent rate of $32,200 and $28,800 respectively, reflecting primarily the strong tanker market and our proactive freight hedging strategy for our only capesize vessel which was earning approximately 28,000 per day until the end of November 2022.

Adjusted EBITDA was $42.2 million in the quarter and $45.1 million in the whole period of operations. Meanwhile, the successful completion of our first investment cycle and the profitable sale of the three tankers, discussed earlier by Stamatios boosted our net income to $36.5 million in the quarter and $37.5 million for the whole period of operations.

Moving on to the balance sheet, cash and cash equivalents at the end of this period, stood at approximately $70 million or $8.50 per share based on the sale based on the share count at the end of the year. This is a result of our successfully timed sale and purchase activity and the reduction of the float through the buyback for the company completed during the year.

Our robust cash position was achieved after debt repayments of $32.4 million and the reduction of the $10 million CDC preferred shares during the fourth quarter. As of December 31, 2022 shareholders' equity was $64.6 million total debt was $42.6 million, including a cash collateralized loan of $15.2 million while the book value of our fleet stood at $50.2 million including advances paid for the acquisition of the two capesize bulkers.

On the financing front on the back of the recent sale of the LR2 tankers in Minoansea and the acquisition of the two capes, the Goodship and Tradership, the company reached an agreement for the collateral swap with the lender of the tanker. The loan was cash collateralized with part of the sale proceeds, and will eventually be secured by the Goodship and Tradership, at which point the cash collateral will be released.

As regards to the acquisition of the two Kamsarmax bulkers we're in progress discussions with the European financial lessor for sale in leaseback transaction to finance approximately 60% of the underlying acquisition costs. We're aiming at a financing amount of approximately $24 million for both vessels at an interest rate of 4% to 4.5% over so far.

Our leverage has been maintained at modest levels, with a loan to value at the end of 2022 standing at 48% including the replacement collaterals while we expect the ratio to raise only marginally after the financing of our recent acquisitions. Net debt at the end of the year was zero.

Our pro forma total debt following the delivery of the four recently acquired dry bulk vessels is projected at $67.7 million against the total fleet value of approximately $128 million based on recent broker valuations and expected acquisition prices. These figures exclude the bareboat Panamax bulk carrier.

Now I would like to add some more details on the bareboat charter agreement for the Panamax bulk carrier mentioned earlier. The vessel has been charted by the company and then in 18 months bareboat charter agreement, with a down payment of $3.5 million signing a payment of $3.5 million upon delivery of the vessel, which actually took place yesterday and payment of a daily charter rate of $7,300 over the period of the bareboat charter.

At the end of the charter, we have a purchase option of $12.4 million, which we feel comfortable that we will be able to finance at that point. Concerning our shareholder reward initiatives as detailed previously by Stamatios, United has completed since September two buyback programs of $3 million each in progress to the significant discount between the trading price and the NAV per share.

In addition to this, we distributed and $1 special dividend per common share in connection with the profitable sale of two Aframax vessels. In November, we redeemed the fully Series preferred shares, eliminating the underlying risk of dilution for shareholders, looking to be consistent on the shareholder's rewards front.

We are also initiating a regular quarterly dividend of $0.075, with a first payout taking place early in April 2023. These initiatives sum to an amount of approximately $24 million in less than six months. This concludes my review.

I will now turn the call back to Stamatios for concluding remarks. Stamatios?

Stamatios Tsantanis

Thank you, Stavros.

As we mentioned earlier, we believe that currently the most attractive investment opportunities are to be found in dry bulk space, and specifically in larger size bulkers. China has exited its zero COVID policy, and we expect to see a healthy rise in steel production and iron ore demand from current levels towards the second half of 2023. In the past months, we have already seen increase in China manufacturing PMIs and steel production utilization, which is gradually going to reduce steel an iron ore inventories.

This may not be a fast process and is obviously not reflected in the current KPI spot market. But we expect that it will lead eventually to higher input demand more in line with the previous years. We're also encouraged by the continuing expansion of credit in China, the low inflation levels which allow ample capacity for government stimulus and the recent small upturn in house prices after a long series of declines.

It is only a matter of time before aggregate demand returns in the economy, which is the main missing link in this economic recovery. Thermal and metallurgical coal demand remains strong. And based on recent indications from several sources, there should not be any winding down until the end of the decade at least.

Finally, aluminum and bauxite usage has been particularly strong globally, and West African bauxite exports have emerged as an important source of demand for capesize doughnuts with seasonality favoring the second half of the year. Therefore, we see a stable demand outlook for dry bulk commodities, as well as a very limited fleet growth.

As we begin the second investment cycle, I would like to say once again, that United Maritime will continue being a unique value play in the public shipping space aiming high shareholder returns through optimally timed purchase and sale transactions.

From here, I would like to turn the call over to the operator and answer any questions you may have. So operator, please take the call.

Question-and-Answer Session

Operator

Thank you. [Operator Instructions] And we have a question from Tate Sullivan with Maxim. Your line is open.

Tate Sullivan

Good morning. I'll start with your comments - and you mentioned no winding down I believe you were referring to the coal trade demand for the next 10 years or is that referring to bauxite demand. What was that?

Stamatios Tsantanis

No, obviously for the coal trade, we don't really see any slowdown in the coal trade, specifically knowing that we have so much new capacity of power generation from thermal coal arising in [indiscernible]. So we believe that there's not going to be any winding down in coal - of coal in the next, you know, three to five years.

Tate Sullivan

And then, thank you for the details on the bareboat agreement - is one potential signal of deciding to finance that acquisition through a bareboat agreement that you're conserving some purchasing capacity to buy other ships or because that involves less of an upfront payment, or were there other reasons for restructuring that purchase that way?

Stamatios Tsantanis

Well, it's a combination of things. First of all, yes, we are saving purchasing capacity, at the same time for our social relationship are driven, because these are major foreign companies that we want to explore additional business and additional deals. So it's a combination of the two.

Tate Sullivan

And then sell - in this market. I mean what outlook that you have for capesize. Are there active opportunities in the dry bulk market to buy capesize ships, more active opportunities today compared to last summer?

Stamatios Tsantanis

Well, not so much. And we wanted to differentiate a little bit from Synergy. That's why we are now looking into different doughnuts mostly Kamsarmax and Panamax to be honest. So we're going to be focusing on some additional deals there. If we find the right opportunity, otherwise, we will pass and - wait for the right opportunity to arise.

Tate Sullivan

And then is part of the strategy United Maritime, and - can you - is it to buy probably a bit older ships, because you see the opportunity in the near term for contracts until potential scrapping or is that not necessarily the case in terms of targeting older ships?

Stamatios Tsantanis

That's an excellent question, Tate. First of all, as we saw, in the case of the tankers, we made this humongous profit by utilizing all the toners that we bought very low, and we sold very high. So we feel now that the entry point is a dry bulk at these levels, which is let's say 10, 12 years old, or maybe slightly older, that as long as it doesn't affect the credibility and the commercial prospects of the ships.

We strongly believe that this may have on a sale and purchase point of view, this may have a very strong potential return for our shareholders and minimum risk, of course, because you buy more ships for the same value. And if the market goes up that we expect it to go up. The profit generating possibility is tremendous.

Tate Sullivan

It's more and more I'm amazed Stamatios. Did I hear you mention on one of your new financings a LIBOR spread of 4% to 4.5% and is that consistent with what you are getting…?

Stavros Gyftakis

Yes, yes that's - good morning Tate also, from my side. Yes, that's I mean, based on the progress discussions, as we having now with European lessor, it seems that we will end up with a facility of $24.5 million for both ships, and which is priced at 4.25% over so far, which is similar to LIBOR plus 4%, which is a very competitive financing, because it's relatively high in the advance, and the profile is very long. So this will contribute to having very sustainable breakeven.

Operator

Thank you. [Operator Instructions] One moment, and I am showing no further questions at this time, I'd like to turn the call back to Stamatios for closing remarks.

Stamatios Tsantanis

Thank you, Catherine. I would like to thank once again, everyone for joining our call today. It's the first I was going to say full year, but the first period of operations 2022. So for the first real period of operations, I think that the United demonstrated a very strong, return prospect. We look forward to replicating that in the future. Let's hope that, you know, for the benefit of all of our shareholders, we will be successful. And on that note, I'd like to thank everyone for joining us today. And please stand by for new updates in the next few weeks and months. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

For further details see: