Q3 2020 Global Ship Lease Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to the global ship lease third quarter 2020 earnings Conference call.
This time, all participants are in a listen only mode. After.
The speakers presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that todays conference is being recorded if you require any further assistance. Please press star zero I would now like to end the conference over to Ian Webber Chief Executive Officer.
Global ship lease. Thank you. Please go ahead Sir.
Hi, Thank you very much and good morning, good afternoon, everyone and welcome to global Shippings third quarter 2002 earnings conference.
Just wanted to confirm it stays presentation are available on our website <unk>.
Duffy adult label strictly store cool.
Slides, two and three as usual I'll remind you that today's call may include forward looking statements that are based on current expectations and assumptions at all only gonna nature inherently uncertain and outside of the company's control.
Actual results may differ materially from these forward looking statements stricter many factors, including those described in the Safe Harbor section of the store concentration.
We also draw your attention to the restructure section.
Most recent annual report on form 20-F, which is for 2000, and launching which probably would be asking city on April 2nd to frozen Turkey.
But you can obtain bar a workshop live audience usage.
One of my statements according to our bodies and all the disclosures in our reports filed with the FCC.
We do not undertake any duty to update forward looking statements.
Reconciliations of the non-GAAP financial measures to which we will refer to during this call and the most directly comparable measures calculated and presented in accordance with GAAP you should refer to the earnings release that we issued this morning, which is also available on our website.
As usual I'm joined Bartlett from traveling Georgia recalls are true for lunch lumps a special so people are still not chief commercial officer told Mr.
George will begin the call with some high level commentary on some updates on our current areas of focus.
Ben capsules, Tom and I will take you through the quarterly results the current market environment on our financials after which we'll be pleased to take your questions.
Turning now to slide four I'll pass the call over to George.
Thank you Dan and good morning, good afternoon to you all.
As you May recall on our last quarterly earnings call. We expect guarded optimism about the signs that we were beginning to see sort of potential chocolate market recovery.
Three months later I'm very happy to confirm that the container shipping industry has significantly outperformed all expectations and the charter market for our ships has experienced a makeable rebound a continuous throughout the day.
Demand for containerized trade has bounced back with volumes and freight rates and certain trade lanes, reaching record highs.
You know them said, there's this robust demand or liner company customers have been extremely active in shopping sips rapidly driving I'd be telling us down from the second quarter peak about 12% to below 2% 11, that's close to full employment for old bucket that was.
Kind of all in the post Panamax segment, well over 75% of our fleet capacity is concentrated competition between charters for telling us he's but secretly fitness and idle capacity is picking much zero.
[noise] East global ship lease catching the wave is the question to Everybodys mind.
The answer is yes.
First of all we're reporting both revenues and adjusted EBITDA up from the third quarter of 2019, reflecting both fleet growth and the recent markets. Thanks.
Second and perhaps more significantly.
The South has expired we have been able to signed 15, new charters or extensions since the beginning of July four.
Well combined revenues of over $120 million.
Demonstrating our ability to lock in contracts at good economics and for longer periods with top tier liner companies when the time is right.
As of September Thirtyth, we had a total of 674 million of contracted revenue well that another period of 2.3 years.
Importantly, the face a weaker demand earlier in the year the liner companies customers have demonstrated a new level of resilience and discipline in managing capacity, which has allowed them to deliver stellar results. Despite all of it.
That combined with our ability to secure strong charter rates and improve our forward contract cover.
Well last Oh.
Reduced leverage has allowed Moody's do recently upgrade updated outlook.
With that background, we believe that we have excellent momentum I was with the sure. So that's the priority of Opportunistically refinance you know 9.87 to five notes that come due in late 2022.
The containership market is becoming more mature with both owners and operators moving forward.
Embracing the multiple challenges that we face.
In view of that and supporting the type of accountability that we believe is important we have also published already nygren. He has to report providing investors and other key stakeholders with insight into our approach to running a business in a forward thinking sustainable and socially responsible manner.
With that I will turn the call to you.
Thank you George Holmes.
On slide five we have an overview of our fleet. We have a total of 43 containerships. The total capacity of almost a quarter of a million cheese.
25 of these ships opposed to Panamax Weinstein, Containerships, which collectively represent three quarters of our fleet capacity.
Wide beam formally fundamental ships to carry more cargo more efficiently.
Like giving wellness lot costs and lower emissions personal.
I'm willing to be ships I have an e. coli collection.
All designed to be inherently more fuel efficient and have the jewels of our fleet.
On slide six we started the role that our ships have asked about ships that are sort of outsized place flexible license form the backbone of global trade.
Our midsized and smaller ships all of which with one exception, although 10000 to you.
Certainly the sweet spot between calling operational flexibility and blue costs and emissions per Calder slot.
And Michael talked left illustrates the first of these points well.
Size and smaller ships trade everywhere and.
Contrast to the big ships or bump 10000 to you like the way out to 23000 to you which tend to be limits its to the east West Alterable trades as you can see from the my bottom line.
Over 70% of some favorable containerized trade volumes are accounted for by the non Mainlane trades intermediates and regional trades.
Which are predominantly served by mid size and smaller ships such as ours.
I'm not sure of athletes, who also has best in class recent capacity positioning us well to meet our customers' demands for transporting evermore refrigerated congers its premium rated and trade growth at higher rates than non reefer or drawing Calder.
As has been the case for some time.
On slide seven you can see a charter contract cover the engine room of our business.
A detailed is broken out on our website and we've provided information on each of our recent you Chaucer's and extensions in our earnings press release issued this morning.
Alex I will make a few bigger picture points here.
The dark blue bars show, new charters, which had been agreed jury pool. So 2020.
And as you can see we've been busy and secure in charter coverage securing multiple years of cover at attractive rates.
The chart shows that Charles degrees in to Q Ah trends in currency hits, a mode and were generally very short in duration as we sold to secure employment for our vessels to ride out.
But expecting the next renewal to be an about smokers.
This strategy has played out very well for us for vessels coming back into the Charleston market the greatly improved circumstances.
For example feed is fixed in the second quarter and the mid.
Yes.
So all the dollars per day subsequently fixed in Q3 in the low to mid nines, I mean <unk> of over 40%.
And today makes for some ships and we have a.
If you're coming from.
The $12000 per day.
<unk>.
They were in the second quarter.
For larger ships the improvements has been even more dramatic some will come back to this in a moment.
800002 ships that were fixing in the markets at rates of around $12000 a day in the second quarter of climbed into the Twentys in the third quarter and are now being fixed at rates as high as $30000 a day.
You will see that we've also take advantage of this market to lock in attractive charter schools three of our larger ships.
That makes sense to me these I'm feel why Warner of Eco <unk> 9002 ships, it's been 33 to 35 months, but.
For commercial reasons, we can't get disclose on with the charterer or the exact day rates, but you can back into a good approximation, but like if we tell you that the implied adjusted EBITDA, we expect over the medium term to term.
It's close to $30 million three zero million dollars.
As George mentioned, just trying to find her amounts to more than 670 million of contracted revenue over an average coupon three years, giving us significant forward visibility.
There's another way we've already locked in pretty much all of our adjusted EBITDA also this year 2020, and also have strong downsides cover.
In for.
For 2021.
Bond with some potential upside.
As we are entering the winter period, when the containership charter market normally sees the second season of downtime, we continue to see very positive market conditions.
And whilst I remain important questions about the sort of the trajectory and the implications are good morning team Doug.
English at least has a strong base to weather any challenges while capitalizing on the opportunities ahead of us.
Yeah, that's all lost Tom to walk us through the market.
Thanks, Jim.
Let's turn to slide eight.
Sorry container shipping is a growth industry container volumes have grown every year of that 60, plus year history with one definite exception on another probably one.
The first exception as 2009 when the world was in the grip of the financial crisis and the second will almost certainly be 2020 as a result of COVID-19.
However, without wishing to make light of only the crisis. The good news is that the container shipping the rebound immediately after the financial crisis was immense and from what were already seeing the rebound as the world gets to grip with kindred is also likely to be impressive.
Now, let's turn to slide nine and George alluded to this earlier even.
Even during the depths of the downturn during the second quarter the liner companies our customers, we're making good money thanks to strong capacity discipline.
2019 was that should be considered to be a pretty good year, but line as to Q 20 results were up way up year on year due illustrates two Q 20, EBITDA for both must can see it may CGM was up by more than 25%.
This is the same period in 2019.
Turning to results for the third quarter, a generally expected to be even better in fact must put out updated full year 20 guidance or in the middle of October materially increasing EBITDA outlook versus previous guidance. They had provided in August.
Three q. freight rates have doubled year on year on the major indices and in fact freight rates from China to the West Coast of North America are at their highest points in more than a decade. So in summary, our counterparties are in good shape something the rating agencies.
I'm beginning to acknowledge.
Turning to slide 10.
You can see that supply side trends are all moving in the right direction idle.
Idle capacity is down sharply from 12% or so during the worst of the second quarter to about 1.6% today.
And the big ship recycling facilities, which were closed for much of two Q reopened, allowing scrap prices to rebound well, maybe it's more accurate I tried to say to normalize accordingly.
On Slide 11, you can see the supply side fundamentals are also supportive for ship sizes were focused on in other words the size segment sitting within the Red box. It's the two charts.
Net fleet growth over the last few years has been negligible and even negative.
And the order book pipeline is at record lows in fact as far as we can tell the overall order book to fleet ratio, which stands at 7.8% hasn't been as low as this for at least the last 40 years.
The picture for 2000 to just under 10000 Teu ships is even better at only 1.7%.
Best of all however is the order book to fleet ratio for our call midsize post Panamax segment had effectively zero.
So what's the list on <unk> earnings in the sector.
The answer to this please turn to slide 12.
Frankly, the charter market is on fire in a good way with rates up anywhere from 50% to well over double to Q loads the.
The chart, which shows how rates have developed for various key sizes and the liquid charter market tells its own story.
No the data on the chart only runs through in September. So the end of the third quarter I can tell you that these positive trends have continued and that rates for various segments and now either.
Or above pre k., but levels.
And as happened during 2019, the way up was led by the mid size post Panamax ships with rate uplift subsequently flowing down to the smaller sizes as each larger sized segment sold out.
So on a positive note I'll turn the presentation over to tunnels to cover the financials.
Thank you Tim.
No slice it between 14 and 15, so I don't know did perform a consolidated balance sheet statement of operations and statements of cash flow based on the third quarter 2000 Twentys meant.
Rather than going through every line item, let me point out if you key items, we generated revenue of 70.5 million during the third quarter and 212.8 million for the nine month period, our adjusted EBITDA was 41.6 million for the quarter and 123 million for the nine months, but.
Optimizers consistent with the first two quarters of 2000, 2020 and up on third quarter 2019, despite the massive downturn in the first half of the year due to the cold with Christ.
Our finance expenses reduced by about 10% regardless of the additional debt facilities for the acquired seeps and the issuance of 2024 notes, mainly due to substantial amortization degrees libel and overall cheaper blended cost of Herlin.
Our normalized net income was 13.8 million for the quarter and 37.8 million for the nine months.
No I won't go through them in detail now, but we have also included on slide 16, and 17, our adjusted EBITDA and operating costs look like later as well as detailed capex guidance, let's see <unk>.
On slide 18, I would like to highlight two additional points our continuous progress in diversifying our portfolio of high quality charters and also the diversification of our lenders.
As some of you will recall at the Genesis of global ship lease the company's entire fleet was on long term charters to see a need to Jim.
Following some early steps to diversify the customer base and not see it show the merger between Poseidon Ingeus and accomplished significant additional diversification, which has continued.
Since that time, we have continued to sign telling theres with a diverse set of top tier counterparties, while almost maintaining its strong working relationship with CMTC, Jim now account for just over 50% no for total revenue.
On the right side, you can see our highly diverse sources of capital.
I won't go through these one by one but you will recognize a wide assortment of eating banks and other kind of see it from around the world are.
Additionally, we have senior unsecured notes due 2024 as well as the Red weights are 9.8, 75% senior secured notes due 2022.
George mentioned at the outset refinancing these high cost debt from the legal from the legacy Gs obese to benefit from our material proved financing position. He is a strategic priority for us with that I will now like to turn the call back to George for closing remarks.
Hi, I will briefly summarize on slide 19 before moving your questions.
Fast we've got great full workout concept cover six on the 74 million significantly up on three months' handle spread out over an average of 2.3 years.
He's generates sufficient cash to move to more than cover our debt service and Capex getting I said as he didn't platform, which has already been successfully stress test by the club it crashes.
With some targeting U.S. due in the next months, we have upside exposure to the stone south to Mike.
Well sure look to pursue selective in accretive growth opportunities in due course.
Second our balance sheet is strong we have a 114 million of cash which is reassuring when times outside of zinc and unpredictable.
And provides us with it shows just to drill.
Loan for a prospective bond refinancing and for growth when the time is right.
Moody's recently recognized our progress and the supportive market fundamentals by improving our credit outlook to be pretty positive.
We have no material debt maturities before me 2022, and we have demonstrated access to multiple sources of non dilutive capital.
[noise] said, we believe strongly that the fleet sits in the sweet spot of.
Our fleet has high operational flexibility and Hyatt, if a capacity with no slots costs and lower emissions that kind of a slow.
All Jeanette eight increased demand from top at us.
Fourth and maybe most importantly, the supply side fundamentals for midsize and smaller ships are phenomenally attractive.
I think a couple <unk> capacity is down to under 2%.
Net fleet growth is expected to be negligible or even negative.
The order book he's out that God knows.
So.
The market has proved more resilient than many expected due to the downturn, our customers I'm, making money hand over fist and rates in the chart that might get out of the steep uplift with.
With many exceed the big probably ties.
Against this backdrop of stuff, that's probably what does it mean to following.
Keep our people safe both at sea and I'm sure.
Opportunistically refinanced our 987 to five notes maturing in November 20 to 22.
And not overarching goal is business resilience, allowing us to lock in value in the federal market and position ourselves for growth going forward.
Thank you all for listening to our prepared remarks, which I hope I've given you a good feel for the nature of our business deal, which opportunities, we see and how we plan to build value going forward.
No then the floor over to you for acuity.
As a reminder to ask a question you won't need to press star one on your telephone just on your question press the pound.
He stands Bobby can about acuity roster.
And your first question does come from Liam Burke.
With B. Riley.
Thank you and good morning.
Well good afternoon.
I have a question on the 2022 senior notes you're a you had a ratings upgrade by the agencies you have strong asset base. Obviously, you have plenty of time could you give us a sense as to what the timing is services now strategic a strategic priority.
Yeah, you want to take this.
Sure they are.
Yes.
Where we're a little reluctant to put out so that's online here experienced traders. So externalities come affects what we do but youre absolutely right to do so number one.
Priority.
We have heard you got something done in the first half and we were pretty close.
Before our cause of mine team systems looks at everything but was.
With a very positive Chaucer markets, which looks likely to continue at least there's no reason why it should not continue driven by the fundamentals of supply and demand, particularly supply.
Lastly, parts is negative sub sectors.
And some.
So I can see.
Or less uncertainty and the U.S. political situation I guess.
No were redoubling, our efforts on the refinancing and where we're working extremely hard to get something done as soon as possible. Because obviously, we can if we can reduce our interest costs for two or three points or when we should do not going as soon as possible to start generating incremental cash flow to develop the business.
Sure that's fair.
And then you have been pretty opportunistic on asset acquisitions or timing seems to be pretty good submarket has come your way now.
With the strengthening of charter rates.
How has that affected your acquisition opportunities.
Well.
I would say that it has not you.
In our industry, there are very few bias and especially in the larger sizes of the.
Focus on post Panamaxes.
Show. The you know the competition is not that strong and we are we have considered one of the best buy is one of the most active buyers into the industry.
Therefore, we have a in many cases fashion look of of transactions and especially as it does actually never come to the market the private transactions show.
Our ability to execute on those actions has not changed because of the.
Drone market.
And I believe that they get you know with a nice opportunities once we leave suites into the growth mode. We wouldn't continue to deliver similar transactions like we have done that and last year.
Great. Thank you George Thank you ma'am.
Our next question is from a word.
Hi, Good morning, Great report I know, you're working hard on refinancing the 22 dead and you may not be able to give the specific answer to this but I'm interested in your general response.
Assuming that the refund as.
Will not include any restrictive covenants that prevents you from starting a dividend policy again for the common stock.
Well.
I would tell you that that I would answer to that.
As a major shareholder and the company.
Clearly companies have that to create shareholder value and distribute dividends show how companies find themselves.
They are strong and we do not need to have a restriction on dividends and into our refinancing.
Show I would say that it is a priority to Keith have maximum flexibility.
In what we will consider and we will execute at the end I said refinance.
If you want to add to that the yen.
Only to say a word on obviously agree with George who we want to not only reduce.
Interest costs.
Or refinance debt, but also increased financial flexibility into the band is hugely important.
Yeah. So.
It is in a great position now so to make acquisitions once we've refinanced, but we tends to continue so like the acquisition was instituted lots in due course, we will need to raise equity.
And to raise equity efficiently.
Or the stock should be paying a dividend so.
We're we're very focused on ensuring appropriate sub dividend capacity.
Thank you very much.
As a reminder, ladies and gentlemen, if you would like to ask a question at this time simply press Star then the number one on your telephone keypad.
Your next question is from Joseph Foresi with Cantor Fitzgerald.
Hi, Good morning, I see cash of 98 could you provide us with what your total credit availability is.
Got you okay.
If you if you go to the Appendix C.
Yes, it's on page 22 of the presentation, we'd have a full breakdown of our debt structure.
Oh, Yeah, I didn't see I was looking at the way we garden. We don't we don't we don't we don't have any on the services.
Yeah on the lines of credit nothing.
Oh, Okay I saw that it was a real one oh level.
Oh, that's my revolvers I mean, if there is if there is something called a revolver isn't authentic resulting called revolt, but all of our Capex is secured on ships and finance. It ships, we don't have any general.
Corporate facilities, and we don't have any lines of credit that we have control. We do have five ships, which are unencumbered.
And would be available to collateralize.
New finance, Argo, standalone or as possible to refinancing the bonds that we previously talked about.
Right, Okay, and so thinking of a liquidity what what are the big things moving forward are you are you seeing any increase in costs any inflation, what <unk> anything out of the norm given the impacts of co that.
No not really.
I.
<unk> EBIT call, which is from a starting point for cash is revenue were talked about revenue.
Huge visibility on revenue.
Starting to experience five does not have a bad debt.
On costs costs are pretty stable it's been.
Fluctuates, a little bit, but not materially and part of that is actually due to tight as it were.
We've always been not being able to change crews as efficiently as it was previously all where we have will actually occur.
Incremental oh and travel costs as operators have put their parts as well.
We'd given your information all debt service I'm, we provided information on a.
Capex would which is a dry docking and scrubber installation sorry.
Well I wouldn't say tussles correct me, if I'm wrong, but I wouldn't say, there's anything out of the ordinary.
Oh, the coated related or anything else from true in the foreseeable future.
Exactly because the old <unk> extraordinary do have already been materialized in the previous quarter.
Don't expect I, Miss something very not predictable appears in the market globally Mark.
Okay, great. Thank you and then the city loan that last balances. It every November that you are required to make we have already paid that tend to flip it over so oh, okay. I'm, sorry, if I don't like 4.7 million have already been already been paid okay.
Okay. So then someone that has gone, but yes, nothing less so on the next 35 million. It all goes to the bondholders and nothing for us for sure. Okay. Very good. Thank you gentlemen, reps I'm I'm not I'm not so not mandatory.
Walks and tours.
Mandatory for you to offer it but not mandatory.
<unk>, it's mandatory for you to take it.
Okay. Thank you.
And the amount will be somewhere near 28 comedian because it also creates the repayment of the senior bank loan that has been taken place.
Oh April and on October [noise].
Okay, perfect hedge had a mother's day event.
So.
Yeah, so sorry to be so to be clear, we've got $28 million coming up.
Before the end of the <unk>, which is mandatory bought for bar on both parties.
On your right next year, it's 35 million.
Remember trail, but I'll, just sort of one or two assuming we'd be responsible.
Right.
Thank you.
Your next question is from Phil Larson with Street capital.
Hi, guys. Congrats on another strong quarter I was going to ask about the onboard as well and then the other just quick one for me is I noticed that you repurchased a small piece of the notes during the quarter have you repurchased any more subsequent to quarter end.
[noise] gosh, you want to.
Yeah, I know friends, who lease we actually mentioned, it's very small part because that's a very small portion of it we have 30 days after the end of the quarter.
Oh I'm sorry, I missed this missed that can you tell me how much it was.
Sure.
Yeah do you have it out of your mind I remember it was around for familiar.
Right.
Oh thanks.
That's fine I can find it is.
Yeah, but.
But not a material portion.
Okay. Thank you.
Your next question is from Matthew.
As an investor.
Good afternoon, everybody fabric.
That's a dog barking up so I scoured the press release and I scoured the investor presentation online.
No where do I see any mention of earnings per share.
And I understand the business is leveraged in EBITDA is an important metric for the leveraged loan scenario, but I'm wondering when can we start talking about earnings per share because there seems to be significant earnings per share.
And I understand the capital structure, maybe complicated with different classes of stock but.
I.
I think at this point, there's there's a story to be told before the equity investors and it's nothing there's nothing disclosed by the focus on servicing the.
The debtors. So I guess this is kind of a suggestion that that management take a look at promoting or disclosing earnings per share and.
Not trust service from a presentation perspective.
The lenders so when I calculate if I just use the class a shares outstanding and it gets complicated after that it's like 70 676 cents per share for the quarter.
And.
That's an impressive number four $7 stock.
No I understand there's leverage but I think again again I think there's a story to be told here for the equity investors snuff, there's not making through the clutter love. The a very important details of the operating business, but the firm for equity investors I think there's there's there should be some interest here.
Thanks for the added four thank you for your comment which is indeed, very very constructive, especially la we give you the answer to that but I tend to agree with you. It's a very good point.
I just mentioned, but as always you know 6K, that's going to be to yourself of the cold today.
The results didn't it doesn't exposure will also be disclosed there.
So you're getting there.
Yeah, that's not bad but you have to start you're right. You have you have to go looking for it and it should be in the headline somewhere.
True true true.
Yeah, I just want you to know these.
Zero eight de 70, if I remember correctly on diluted basis.
<unk> noted for that's with them and then next time.
Okay. Thank you.
There are no further questions in queue at this time I'll turn the call back over to Mr. Weber.
For closing comments.
Great. Thank you. Thank you very much everybody. Thanks for listening to your commentary we look forward to promote.
Regarding your updates on Q4 oney leave here. Thank you very much.
Uh huh.
Thank you.
[laughter].
This concludes today's conference call. Thank you for participating you may now disconnect.
[noise].