Q2 2022 Global Ship Lease Inc Earnings Call
Good day My name is Dennis and I will be your conference operator today.
At this time I would like to welcome everyone to the global ship lease second quarter 2022 earnings conference call.
All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If.
If you would like to ask a question. During this time simply press Star then the number one on your telephone keypad to withdraw your question Press Star one again.
I would now like to turn the conference over to Ian Webber Chief Executive Officer of Global ship lease. Please go ahead.
Thank you very much.
Hi, Good morning, good afternoon, everybody and welcome to the global ship lease.
Second quarter 2022 earnings conference call.
The slides that accompany today's presentation are available on our website at www global ship lease don't come.
Slides, two and three of our presentation I'll remind you that states call may include forward looking statements that are based on current expectations and assumptions.
Only that nature inherently uncertain and outside of the company's control.
Actual results may differ materially from these forward looking statements due to many factors, including those described in the Safe Harbor section of the slide presentation.
We also draw your attention to the risk factors section of our most recent annual report on form 20-F, which is for 2021.
With the SEC on March the 24 this year.
You can obtain this far in our websites or via the SEC's.
All of our statements are qualified by these and other disclosures in our reports filed with the SEC.
We do not undertake any duty to update forward looking statements.
For reconciliations of the non-GAAP financial measures to which we will refer during this call to the most directly comparable measures calculated and presented is 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 today by our executive Chairman, George <unk>, Our Chief Financial Officer.
So rough on us and actually commercial officer, Tom Lister.
George will begin the call with a high level commentary on GSL and our industry and then test us Tom and I will take you through our recent activity.
The results and financials current market environment, after which we'd be pleased to take your questions.
So now turning to slide four I'll pass the call over to George.
Thank you Anne and good afternoon or evening to all of you joining us today.
Our last quarterly call in early May we noticed that the microenvironment contained significant uncertainty ranging from war in grain to Lockdowns in China too.
Rising inflation around the world.
We also have the time drew a contrast between those very real unknowns on the one hand, and the clarity and fixed nature of GSL business and earnings on the other.
These dynamics continue to define the current period.
His question is about the microenvironment grow more pronounced while GSL continues to reap the benefits of a market segment with almost zero idle capacity and limited net fleet growth through the middle of the decade.
Meanwhile.
Our position continues to tie up ships and potential labor disputes present, the risk of further disruption to the liner sector and broader supply chain.
Now turning briefly to the numbers.
Throughout the first half of this year the substantial uplift from our 'twenty to 'twenty, one accretive growth.
From looking at new charters at higher rates has doubled our EBITDA and more than trebled, our normalized net income.
For the same period last year.
And we have continued to agree additional charters and extensions in 2022 <unk>.
Including forward fixtures for 2023.
A further $435 million of contract cover.
For our fleet in the year to date.
On the basis of the strong multiyear coverage, we were able to place $350 million of senior secured notes.
Pivot placement during the quarter.
Simplifying our capital structure, and reducing our cost of debt in a manner that strengthen us for the long term.
This paper was privately rated investment grade.
And further improvements in our balance sheet were recognized in an improved outlook in our corporate rating from Moody's and.
And then not up to double B from standard and poors.
In line with a growing consensus from customers and other stakeholders. We have established good momentum on the decarbonization front.
We are focused by mildly on retrofitting, our existing ships with proven technologies to improve their energy efficiency and reduce emissions.
We have various projects underway.
In close collaboration with our liner operator customers to ensure that the efficiency and hanes capex increases the commercial value of the ship and drive improved earnings going forward.
We also monitor technically and commercially promising new carbon mitigation solutions in the market, including a compelling carbon capture technology in which we made a small investment in the quarter.
Concluding my opening remark.
We're living in a certain time in uncertain times.
And the extraordinary volatility of the capital markets across all sectors reflects that.
Against this backdrop, we maintained our conservative and risk averse approach extended forward contract cover building equity value by reducing our cost of debt and delevering.
Allocating capital in a highly disciplined manner and growing cash liquidity to ensure that we are well positioned to manage risks and capitalize on opportunities as they arise.
With that I will turn the call to <unk>.
Thank you Joe.
As previously please turn to slide five.
We split answer two slides the portions of our fleet earnings up to the beginning of 2021.
This purchase thereafter, essentially during the course of 2021.
This slide slide five shows the former group.
As of the end.
End of 2020, it illustrates our high activity level and the dramatically improved rates and long durations of charters signs over the last year and a half.
The light blue bars are those charters, which were already in place coming into 2021.
The dark blue bars indicate those agreed during 2021.
And the Red bars, a new charters agreed or extensions options exercised so far this year in 2022.
The trend is clear.
Rates across our fleets have improved significantly.
Mac coverage is strong through at least the medium term and in many cases, we've been able to secure multi year charters, but relatively older vessels at rates far about their previous employment.
In each instance, the operating leverage in our business means that incremental cash flow goes almost entirely to our bottom line.
The next slide slide six shows vessels that were acquired during the course of last year 2021.
With the dark blue bars, indicating charters agreed subsequent.
Guarding the GSL fleet again, the trend is clear as the newer chances are multiples of their prior levels.
All in all we have over one $9 billion of contract cover over an average remaining duration of two six years.
And we've seen our adjusted EBITDA in the first half of 2022 more than doubled compared to the first half of 2021.
On the next slide slide seven we provide some illustrative guidance on how our contract cover flows to our earnings.
As we said in the past we need to be clear. This is not a forecast which is providing three illustrative scenarios that demonstrates limited degree of exposure at the end of <unk> and the monitoring which prevailing market charter rates would be expected to flow through to our adjusted EBITA.
The assumptions underlying this exercise is spelled out in detail in the EBITDA calculator in the appendix of this presentation.
Let me highlight just a few things.
Turning to two we have no exposure to the charter market upside from analyst unanticipated all file unplanned off hire days revenue streams are essentially fixed for the year.
For 2023, you will have seen the white bars, and the red boxes on the left of each charts, which represents.
Fixed revenues have been shrinking in recent quarters.
Fundamentally the bar showing contracted revenue have grown as we've agreed new charters and extension options have been exercised to lock in additional fixed rate cash flow and further limits our charter market exposure.
Through the end of next year at this point.
We have 91% of our ownership days in 2023 covered.
Also of note those vessels that do have availability in 2023 currently unchartered below prevailing market rates.
<unk> scope for additional earnings uplift on renew.
The main takeaway from this slide is that under a variety of market scenarios. Our adjusted EBIT a pathway is trending positively supported by a high percentage of fixed charter contracts.
Yeah.
Turning now to slide eight for an overview of our dynamic and disciplined company communication strategy.
Because of that core business needs that is operating expenses for the ships maintenance capex.
Quarterly dividends SG&A are well covered by contracted cash flows were in a position to focus our attention on additional capital allocation opportunities.
Okay relative returns adjusted for risk.
Among those opportunities are.
Turning to capital to shareholders.
A listing of both our sustainable quarterly dividend, which we increased by 50% last quarter to $37 <unk> per share.
And opportunistic share buybacks.
During the second quarter, we invested $4 9 million in buying back our shares as part of the $40 million authorization, which we told you about last quarter.
This brings our total buybacks over the last 12 months, it's almost $15 million.
We continue to look at buybacks going forward or were subject to context.
As George mentioned, we're also deleveraging and manage balance sheet risk and build equity value as we've done for some time.
Beyond basic maintenance Capex in regulatory dry dockings it is clear.
Holding market and regulatory demands make decarbonization related capex and necessity for ensuring regulatory compliance and medium to long term competitiveness of our ships and viability in the container shipping industry.
Notably the increasing reach of scope three emissions reporting means that our customers' customers such as the big retailers in the U S and elsewhere.
I'll now focused on the emissions profiles of their supply chains to a greater extent than ever before.
As George mentioned at the beginning of the call. We are focused on proven decarbonization solutions, while keeping an eye on new developments and we intend to take proactive but measured approach to ensure that our vessels remain competitive whilst also maximizing their useful lives.
We also keep an eye on accretive growth opportunities and fleet renewal opportunities on a selective and disciplined basis.
We have demonstrated both the willingness to be patient and the capacity to act decisively when an appealing and accretive growth opportunity arises and we will maintain that posture.
And more generally we are building cash liquidity.
The resilience and Optionality.
Valuable qualities.
Certain time within a cyclical industry.
When considering risks to these capital allocation pumps, we're acutely aware of things like forward visibility or lack thereof.
All of our contracts that cover the macro environments industry cyclicality cyclicality evolving regulations and the changing decarbonization landscape.
Fundamentally we're focused on generating long term value for shareholders through a battle.
<unk> approach that is sustainable in a cyclical industry.
With that I'll turn the call over to <unk> to talk you through our financials.
Thank you Ian on slide nine we have summarized our first half 2022 financial highlights.
Revenue for the first half was $308 million up from $156 million in the prior year period.
Similarly, adjusted EBITDA for the first half was $190 million.
Up from $94 million first half of 2021.
Our normalized income, which adds ask for one off items increased from 41 $5 million in the first half of 2000 $21 million to $137 million in the first half of 2022 and.
Multiple of three three times.
Moving to the balance sheet items I would highlight the following for the six months period.
Recently, we completed the U S private placement of $350 million of privately rated investment grade debt priced at 569%, which consist of 284% at three two years interpolate U S treasury yield plus a margin of 285% and use them.
Since two fully redeemed our 8% senior unsecured notes due 2024 as of July 2022.
Fully repaid our $197 6 million outstanding balance on our LIBOR, plus 7% Haven credit facility due 2026 and fully repaid our nine.
A $39 7 million dollar Hellenic LIBOR, plus three 9% facility due 2024, which also freed up five seats that are now unencumbered.
We favorably amended the covenants and extended the maturity to December 2026 of our LIBOR plus 3% syndicated loan facility with an outstanding balance of $197 $2 million.
Those amendments freed up three seats from the syndicated loan security package and we subsequently raised a $60 million syndicated loan against those three seats at LIBOR plus 275 with maturity in 2026.
In a move that we are more pleased about each day, we have put in place interest rate caps at 0.75% liable for all of our floating rate debt. We also put in place a $40 million share buyback authorization of which we have already utilized $4 9 million.
Finally, we are paying a quarterly dividend of 37, five cents per share $1 $5 per share annualized, which we increase to that level last quarter.
Now on Slide 10 is a summary of our key capital structure developments over time.
In the upper left is our scheduled amortization in the coming years, we believe that an aggressive amortization schedule is prudent for our business and we utilize our cash flows to deleverage, while limiting our exposure to refinancing risk at loan maturity.
Detailed amortization schedule is in the appendix of this presentation on slide 26.
On the upper right you can see that we have continued to reduce both the margin of our debt and our overall cost of debt even in the current inflationary environment.
Overall, we have reduced our average margin from four 6% at the beginning of the year to under three 1% now and our total cost of debt now stands at just over four 5% against the backdrop of an increasing interest rate environment.
These improvements reflect a significantly strengthened balance sheet and support our long term competitiveness as a lessor.
On the lower left you will see that the trading liquidity in our stock while reduced recently as a result of a sector wide pullback in valuations remain substantially above earlier levels help we believe by a material increase in our public float and trading in our stock.
With that I will turn the call over to Tom.
Thanks Stefan.
As usual and the benefit of listeners who are new to GSO Slide 11 is intended to highlight the ship sizes on which our business is focused and which will help subsequent slides in context.
So GSO is focused on mid sized and smaller ships, which is shorthand for ships ranging from about 2000 Teu up to about 10000, Teu, which is effectively the liquid charter market.
The top map on the left shows the deployment of quote unquote, our size of ship E ships under 10000, Teu and emphasizes the operational flexibility.
As you can see they're deployed everywhere.
The bottom map on the other hand shows where the big ships those larger than 10000 Teu are deployed which tends to be on the east West main lane or arterial trades, where the cargo volumes and shoreside infrastructure can support them.
And it's important to note that over 70% seven zero percent of global Containerized trade volumes all moved outside the main lanes and the north South regional and intermediate trades served primarily by ships like ours.
In his opening remarks, George acknowledged the Claudia macro and geopolitical outlook that we're all currently facing.
And the uncertainty that that may bring to the consumer demand front.
But as usual rather than trying to second guess, how containerized demand itself may or may not evolve we prefer to focus on the supply side, where we do have visibility and against which investors and others concert containerized trade or GDP growth projections as they feel appropriate.
Slide 12 shows the supply side trends that a barometer of health for the sector.
The top chart shows idle capacity, which remains below 1% so effectively full employment of the global fleet.
The bottom chart tells a similar story containership recycling scrapping was almost nonexistent for container ships in 2021 and has fallen to zero year to date in 2022.
Both of these factors are symptomatic of a continued demand from liner operators for the limited capacity available in the market with even the very oldest ships finding continued employment.
Slide 13 looks at the order book.
Here you can see on the left the composition of the order book by size segment covering deliveries scheduled to take place all the way through into 2025 now.
Undeniably the order book has expanded during the course of the last 18 months or so reaching an overall order book to fleet ratio of 29, 9% at the end of June .
It continues to be heavily skewed towards the bigger ships over 10000 Teu.
For which the order book to fleet ratio was 52, 3%.
Meanwhile, our focus segments of 2000 to 10000 Teu highlighted in the Red box have a significantly lower ratio of a little over 15%.
And there are two important points to keep in mind when assessing the order book.
First is that mid size and smaller containership fleet is aging.
As you can see from the chart on the right.
Scrapping will continue to be deferred by the end of 2025, our substantial flight slice of the sub 10000 Teu capacity currently on the water about one 5 million Teus worth would be at least 25 years old and candidates for recycling yards net.
Net this out against the total order book of sub 10000 Teu due to be delivered through to the end of 2025, and you would get implied net growth in these sizes of just five 5%, which itself would be spread out over the coming three and a half years I'll say.
The second point is the 2023 marks the implementation of the new environmental Decarbonization regulations, which according to growing industry consensus is expected to cause a slowing down of the global fleet to reduce emissions, thus reducing effective supply.
To put that in context, reducing the average operating speed of the global Containership fleet by only one not as calculated by MSI, which is the independent consultancy, we use to reduce effective supply by 6% to 7%.
While macro uncertainty is very real and the order book is growing faster than we would ideally like we still see the supply side fundamentals for all focused sizes are supportive.
Which brings us to slide 14, the charter market.
As you can see from the chart, while the charter market continued to firm through the first quarter of this year upward momentum tailed off during the second quarter, albeit remaining at cyclical highs.
Capacity is still tight and demand is still there, hence the new charters, including the forward fixtures, we've just announced but the market is for the time being lacking the same firm direction, we saw in previous quarters and its probably best described as in the title of this slide as being in wait and see mode.
On this basis, you will see on the right hand side of the slide that we have softened a little our guidance on term charter rates and durations available in the market for prompt tonnage today still extremely attractive, but slightly off the all time peaks, we saw earlier in the year.
And with that I'll turn the call back to George to wrap up.
George.
Thank you Don.
I'll provide just a brief summary, and then we would be happy to take your questions.
With $1 $9 billion of contracted revenue spread out over an average of $2. Six years, we have a debt service capex and dividends for 'twenty to 'twenty to 'twenty two 'twenty three in March of 'twenty to 'twenty four fully covered with.
With no reliance upon charter renewals, while we continue to focus on additional forward fixtures.
We have a great balance sheet that is stronger than it has ever been and we have continued to reduce our cost of debt in the context of a rising interest rate environment and follow on aggressive amortization scheduled, allowing us to both de risked the balance sheet and build equity value.
We intend to build further our cash liquidity.
Both for resilience and to be able to take advantage on a highly disciplined basis of any accretive dividend supporting growth opportunities that may arise.
Our fleet of high Reefer, midsized post Panamax and smaller container ships is in the sweet spot of the market and supported by supply side fundamentals and.
In fact effective capacity in our segments may shrink from 2023 due to new regulations that would slow vessels down.
The macro picture is clouded by uncertainty and we have seen sentiment softening relative duration quarters in line has taken a wait and see approach.
Nevertheless, the global fleet is effectively fully employed charter markets remain close to the cyclical highs and the liners are forecasting another year of exceptional earnings in 2022.
Finally, we're allocating our capital in an accretive and balanced manner that maximizes long term value.
As evidenced by the doubling of our adjusted EBITDA and more than tripling of normalized net income over the last year.
We're paying a highly sustainable quarterly dividend equating to $1 50 per share a year.
And I have also spent almost $15 million on share buybacks within the last 12 months and I will conclude by repeating for emphasis that we are building cash liquidity for resilience optionality and to ensure that the GSL fleet remains competitive on both the general performance in decarbonization basis in line with evolving customer demand and regulations.
With that we would be happy to take your questions.
At this time I would like to remind everyone in order to ask a question simply press Star then the number one on your telephone keypad.
Your first question is from the line of Omar not with Jefferies. Please go ahead.
Thank you Hey, guys good afternoon.
Obviously, congratulations on a pretty solid quarter and really further strengthening the balance sheet.
I did want to ask maybe just on your comments regarding the wait and see mode that charters have currently obviously there's been commentary.
Florida has taken a step back and kind of assessing what to do in terms of chartering ships as they become available.
That of course, you guys just fixed four of your shifts.
Five years at a pretty attractive rate. So maybe just in general could you maybe qualify a little bit that wait and see mode does that apply to as you show on slide four the different ship sizes.
Where would you say that that's actually happening in a meaningful way and whether the.
What size range is probably more effected by the wait and see which ones at the moment are still.
I was looking for if that's the case.
Hi, Thank you. Thank you for the good question.
I will try to give my opinion then Tom also.
Joining me.
At.
I think that right now every day, we hear more news on the inflation and the possible.
Slowing down of the economy.
IMS comes out with reducing forecast and so on and so forth. So Atlanta companies like us They don't have a crystal ball. So they are worried about demand going forward in.
And obviously that puts the let's say wait and see mode.
That they are in on the other hand.
What they all know and this is right now is happening in our industry. It's a lot of question sort of answers a lot of analysis and our projections.
On <unk>.
2023 speed of the ships.
In accordance with complying with the new <unk> CIA requirements. So the liner companies are asking US guys. This ship.
In order to.
<unk> Si.
Compliance whats the maximum fits you can do and then the next question comes and on the basis of 2021 performance.
It looks like.
And what can we do to make the CIA within the acceptable limits, which is ABC rather than DNA.
And I don't know if anybody has seen the article of yesterday from Mister School, who is the head of mask.
Said that according to to what is going to be the new regulations. There is going to be a shortage within 5% to 15% for at least mask if I recall.
The article right of ships because of the slower steaming in other words the same shape.
In order to moving slower theyre going to need the beep at 15% more ships to make the same job.
So right now something that investors do not know if there is a big.
Let's say analysis happening in all of Atlanta companies on seeing the existing fleet that they have.
What speed they can achieve next year in order to be compliant and that speed that probably is to say not sometimes lower than than it is today easily 15% lower than what it used to be in 2021 at least from what we see.
And it's not just the speed is a lot of other things once the ship has to stop and sit in our noncore its weight for forgetting the best because of congestion that destroys the CIA rating of the ship shoal congestion doesn't help and congestion makes ships at.
To have two more.
Move even slower than they would have if there was no congestion I don't know I thought the government too technical but I'm just trying to give you guys real time information rather than just tell you generally this.
So.
That is on one hand, it's like a balance on one hand, we have this question mark of.
Slow speeding and everything.
Reducing supply of ships and on the other hand, we have the economy, which there is a question mark.
With the inventories and stuff going up of reducing demand, so which side of the balance is going to tilt. Its the question I think in the heads of liner companies.
With respect.
Obviously.
One thing to see.
Secure the ships that they feel are.
Primary.
Use the important ship to them.
And they feel a little bit less.
Interested in securing the less interesting ships.
I'll, let Tom.
Speak about that more.
Sure.
Thanks, George Omar to address your question on size.
Got it.
I think seven ships ranging from about 2200 Teu up to three and a half thousand Teu coming open within the next six to nine months or so.
When we analyze the rest of the market and ships coming open of comparable size within the next six months or so that are only roughly 20% to 30 and the overall market. So there's still very limited capacity coming available and as a result that is generally supportive of.
Being able to find employment for those ships bought as George said the lines are holding their horses, a little bit and waiting to see both how the macro plays out and how this new regulation begins to play out because it's all theoretical we won't really know until it actually.
Sort of comes into play for the industry, but nevertheless, we think the outlook is comparatively supportive.
From a supply side perspective, so the caveat is really upon the demand side I don't know if that addresses the.
The questions you had.
I would also add that within that context, we are supremely aware the lines are going to be focused not only on decarbonization.
But also in a high fuel environment on reducing fuel burn now both of those arrows pointing in the same direction, which is to make ships a more efficient so invest in decarbonization energy enhancements.
And B also slow the ships down and we see it that is helpful on both fronts.
I'll pause there.
That was that was.
Very good and very detailed.
Just a couple of maybe follow ups to that that I think.
The I guess in that size range. It does sound somewhat familiar.
Similar dynamic I guess took place if I recall last fall, whether that wait and see attitude or maybe not the October November and that.
They finally opened up the ship.
I guess in terms of George I've been mentioning regarding the CIA.
That sounds fairly significant so I think up to this point that's felt maybe a little time for maybe two big picture, but it sounds like it's really happening where there's real tangible activity in terms of liners looking to slowdown or preparing to slowdown and Tom you had mentioned each knot is about 6% of the fleet and so it is indeed.
Those three if we're talking three not right there were <unk>.
<unk>, 18% of the fleet.
Do you think that's it.
Let's take I mean, it sounds like it is just based on your commentary, but is that kind of where the market is heading.
Well I mean, that's sort of where the consensus sits at the moment, but I think to echo what George said.
According to the article covering Soren Scouts comments, they talk about 5% to 15% they very wisely are offering a range.
Arms of shortfalls in capacity May come as a result of slowing down the fleet. So I don't think theres any dispute at least that I've heard about the idea that slowing down the fleet is going to be necessary in order to meet the decarbonization rigs, but the only question is by how much and that's going to.
Speculation for the time being until 2023, when it actually kicks in but youre right six months to 7% for each knot.
Average operating speed that the fleet slows down is is the number we have.
Very good thanks for that and I just have one follow up.
Amit.
The swaps.
That cover the floating rate debt with LIBOR at 75 bps, just wanted to ask how far.
Does that.
The floating rate debt.
The interest rate caps in here Tassos correct me, but I think they go out as far as 2026 correctly. The same amortization of the existing SaaS is actually sort.
Sorry, I didn't hear you very well it actually follows the amortization that we have in line on.
January that we have closed the facility and it goes up to 2026.
Got it okay. So it just makes the entire life of the facility.
Correct.
Very good okay, well, thanks for taking my question I'll turn it over.
Pleasure Thanks Shlomo.
Your next question is from the line of Liam Burke with B. Riley. Please go ahead. Thank you and how are you today.
Well, thanks, Joe how are you.
Fine Thank you.
Can we talk a bit about acquisitions have been very opportunistic obviously, you don't see a lot of opportunity out there because you bought back stock.
XOMA play at a better return.
What does the asset acquisition market look like now are you seeing any lightning up with.
Spot rates sort of.
Moving down.
Yes.
We do see and continuously we discuss and.
Evaluate sale and leaseback deals, which are not really market related those deals have nothing to do with where the market is today those are financial transactions that.
We just buy the asset at a specific price.
Unlikely.
A market price, usually less and we get a lower charter rate, but that's just a sale and leaseback. These deals we continuously look and evaluate and we haven't found yet something to make us.
Although excited but there's a number of those deals coming in actually asked us as we go into the summer we believe in.
Paul.
You're going to see more of those.
Given all these technical issues about.
Going down ships et cetera.
Now on a.
Opportunistically buying ships that do not have a charter right now the prices are too high for us and Thats why we havent done anything for the last 12 months.
We will see we expect once the market's soft dense we will see opportunities coming into the market. It's the usual cyclicality.
And that's what we know how to do we know how to buy ships at the right time, and then milk them away.
At the market or both the ships on long term employment and gave great results and EBITDA.
But we.
We do not think that this is going to happen in the immediate future over the next let's say.
Six months, we only think that in the next six months the opportunities will probably come.
If they do come from sale and leaseback transactions.
Got it.
Liam if I can just add to those remarks of George I mean to some extent.
Although I agree with everything that George has said about the cyclicality of the market and the nature of opportunities, which we haven't seen anything that meets our criteria or would meet our criteria.
Over the course of the last well over 12 months, it's also a little bit academic because.
The cash that we're generating is we're beginning to harvest from the acquisitions, we made last year and from the charters, but it's only really going to start to accumulate.
Towards the back end of this year. So there hasnt been a huge amount of let's say cash to put opportunistically to work.
Even if we were to wish to do so, although obviously, where we to buy ships, we would be able to put that against them, but I just wanted to make that point there isn't a huge amount of discretionary cash sloshing around to be deployed opportunistically at the moment.
Fair enough.
So on your most recent re charters I believe they were for 16 months and.
Nice premium.
To what you have been earning now looking at the remaining vessels are you looking at a significant trade off between rates and duration.
And how is that working out.
Sure.
Okay. So there isn't a sort of a neat answer to that unfortunately.
As I said, we've got seven ships that are coming open in the next six to nine months.
I would say the charter market is waiting to see on both sides.
We're in no hurry to fix for ships, we've got great charter coverage as it is so.
We're not panicking to fix them and the lines as we mentioned earlier in our in a bit of a wait and see mode to try and understand how the macro is going to play out and how the.
The regulations are going to play out so at least on the on the smaller ships.
It's more challenging to put in place forward fixtures. However, we are continuing to look at forward fixtures for.
Some of the larger tonnage, but obviously if and when we have something to report, we'll will report to the market sorry, a slightly elusive answer in a way.
Good answer.
Okay.
Got it.
Alright, well, thank you very much.
Our pleasure thank you.
Your next question is from the line of climate to <unk> with value Investor's edge. Please go ahead.
Good morning, Thank you for taking my questions.
I want to start by asking about the environmentally related capex going forward could you provide some commentary on the investments you'll be making and secondly, do you believe you'll be able to recoup part of those investments from charters for example through a higher rate than previously agreed.
Hi.
This is Tom Lister talking thanks for the question.
Okay, how to answer this elegantly we're in conversations with with charterers.
On this the nature of which is commercial and somewhat confidential, but I think the the easiest analogy to draw.
Between what is happening now when it comes to decarbonization and what we have done in the past with scrubbers. So installing exhaust gas cleaning systems on ships is that we only installed those scrubbers.
Against either a rate uplift so an earnings uplift or a contractual extension or indeed, both so yes, we would expect any capex spent on decarbonization enhancements to translate into an.
An increase in EBITDA on the corresponding vessels over time number one and number two if you enhance the vessels youre left with a more valuable asset I E more.
Commercially attractive asset, which is likely to be more sticky, let's say for the charterer with whom.
We would have coordinated.
<unk> I hope that covers your question, but happy to follow cover any follow ups.
So we need to need us.
And in April we repurchased around 5 million worth of shares but no repurchases were conducted thereafter, despite the lower pricing.
Was this due to their opinions and transactions.
And secondly, as free cash flow ramps up going forward, how do you plan on balancing share repurchases with potential acquisitions.
Okay.
Yes, do you want to take that.
Sure.
Yes, Youre right, we did opportunistically buyback around $5 million worth of stock in April .
We were focused on the refinancing transaction box.
We made a conscious decision.
Not to repurchase stock last quarter.
We've mentioned.
Yeah.
Design to build cash liquidity for resilience to take advantages of opportunities down the line.
Tom Tom has mentioned already and we've talked on previous earnings calls.
The.
Increase in cash flow associated with our chartering activity over the last 12 months really.
Flow until towards the end of this current year so.
We've had limited cash available to repurchase stock or make acquisitions in the context of what.
What Tom said.
But we remain.
I'm very open to deploying the remaining $35 million.
Or is the amount that we have from my board.
Opportunistic basis.
As always risk adjusted.
Adjustment coal.
We understand that some people will have different views on ours.
No decision has been too.
Wait and see.
On stock with the cash and capital allocation and stock repurchases.
Alright, thanks for the color that's all for me. Thank you for taking my questions and congratulations for the quarter.
Thank you.
Yeah.
Your next question is from the line of Frodo Mark at all with Clarksons <unk> Securities. Please go ahead.
Thank you.
Alright.
Hi, Freda.
Yes.
Just a marketing question really.
That's been a lot of talk about.
Counterparty risk.
Particularly for liner companies, which have these.
Multiyear contract.
Right.
Yeah.
It seems likely that the rates could be.
Tried to reduced.
Sure.
If spot rates go down.
I mean talking about the box rates now.
Yeah.
How would you think about for you guys on the time charter counterparty risks.
Hi.
Do you see that.
Yes.
The marine rates or something that it's unlikely to happen.
Yes.
I'll give this a go.
All right.
We think it's highly unlikely to happen.
The container shipping industry, along with the rest of the global economy.
Went through some incredibly difficult times.
After 2008 2009.
And the liner companies.
Almost all of their contracts not just with us but it was.
As far as we know them I think we would note.
Pretty much everybody else.
All along the company has bought one in June .
Survived the deepest most extended downturn however.
We have fixed rate noncancelable time charter contracts with our Counterparties who are in.
The strongest position that they've ever been because of the earnings had been generating over the last.
12, or 18 months.
Those contracts have been tested.
Throughout history, both in practical terms and also legally.
So we really don't have any.
We're not losing any sleep about the prospect of counterparty default.
I understand that's great.
And that brings me the next question please.
When you look at the EBITDA calculation you have.
Even if you factor in the low end.
Or the 15 year time charter rates.
Yeah.
You basically had free cash flow after debt repayments of more.
100 million this year and more than 200 million free cash flow next year.
Yes.
Think about that for Bob.
On my calculation that similar to 2023, so basically you have 500 and the free cash flow.
The near future.
Stand up your.
You need to see the cash coming in and the cash.
Being available before buying back stock.
Yeah.
Thank you Matt.
If you look at the.
Free cash flow per share.
It sums up to $14 per share.
So quite significant.
In my view.
Our engineered to buyback shares.
And then.
When you kind of and of course correct.
Well.
Yes.
Yes.
Great.
Yes.
I've indicated as well given the reports about some made some comments on that subject. So just just earlier further.
The practical measures that we don't we don't have spare cash at the moment.
That builds towards the end of the year and we take those if you will comment on some of the comments that we have from.
The other thing too interested in GSO.
Yes, good evening.
Even if you don't buy back sales of course.
Deleveraging obligated.
So anyway.
That's all for me thank you.
Thanks Rhonda.
Your next question is from the line of Brett Hendrickson with <unk> capital. Please go ahead.
Hey, How's it going guys.
Hey, Brian .
For auto actually App.
It was on the.
The same wavelength as me there I wanted to ask about a couple of things and maybe all of all.
Maybe just a just a question a little bit but before that.
So I wanted to make sure I heard you right on the where you given the average weighted interest going forward. After these refis.
Yes, we have we have reduced.
The margin as.
As we have mentioned to below three 1% any general along with hedging we have managed to secure the company that it will remain at the low cost more or less the level that we are right now.
Okay. So then with the hedging locked in and.
LIBOR Whats your average rate then understanding the rates three one.
It is around $4 five right now, which I believe that it will be more or less the same.
Okay. That's good I heard the $4 five.
With five in the prepared remarks.
I thought I heard you wrong, but thats great.
You can see the analysis, if you want on page 10 on.
On our presentation of how we okay. Okay.
And I had modeled interest and other finance expense next year going down, but I think I'm gonna have to revise that because I think it's going to go down even faster than you just hold photo that you don't have.
Any any counterparty risk.
And so I guess and we know that this cash is going to come in in Q4, I guess why not why not use your line of credit availability to buy stock now just in case, the stock's way higher in Q4, when the cash comes in to kind of the size of that difference is a little bit.
Yes.
Yeah.
Oh.
We've talked about lines of credit, we don't actually have one of them.
We can probably get one.
We wanted to.
We've been focused on the refinancing Brett.
<unk>.
We can look at.
If I may I would just you know.
We don't want to add more debt on the company right now as we have managed to have an excellent rating with rating agencies and it looks like we're going to get the update that hopefully that as shown on Moody's also so if.
You know.
If we.
If we get.
What that was.
Just just to buyback our stock it would hurt our rating him I'm sure.
That would be great for the company.
I agree alright.
Quick a quick clarifying remark there when we're not suggesting that Moody's is expecting to upgrade us.
George was referencing the fact that they've changed the outlook from stable to positive just to just to be clear.
Yes, and I would think that Moody's in really all people involved with other lenders or equity investors, but also understand that I mean.
I mean for every $10 million.
Stock you buy back at these prices you're you're saving.
Almost $1 million.
On dividends, which is.
Isn't the same as interest because it can always be canceled, but Moody's and other places know that you don't other rating agencies know that you don't like to cancel the dividend. So they take the dividend burden into consideration, but I mean, you're reducing the dividend can you remind us the $181 million of.
Of cash that's there I know when we talked back in.
Back in January and February .
Some of that was tied up on.
No no.
180 million that you actually seen our our cash cash equivalents in the balance sheet right. Now. It also include a portion of that have been already.
Used in order to eliminate the 2024 notes, which was around 92 million you will find that in the subsequent events.
It's more or less release six.
Half of wheat, as a free liquidity and in that case, we also have.
Out of these free liquidity covenants.
A little bit higher than $20 million, which is related to the three minimum liquidity covenants that they are throughout our facilities.
Yeah.
And besides that you may need for operation and then all of that so you're leaving something like 70 something million of.
<unk> gas, which in this case. It includes also the working capital the operation that you may need and everything.
Yeah, Okay. So yes, so until some more of that cash flow comes in there is there is some room to buy back stock I would think within that $90 million remaining knowing that you had to set aside.
10, or 20 for one of those longer term contracts.
But I would think that given that those cash coming in but we can talk more offline I just wanted to make sure you guys weren't missing the opportunity I think in this kind of a gift that you're able to buy back stock.
Such a high free cash flow yield when you got so much free cash flow between now and the end of 'twenty four locked in with.
With fleet.
With effective fleet capacity being reduced by the by the.
Reductions in speeds up the liner companies are going to have to do it just seems like a unique moment in history.
To take advantage of it as we've talked about in the wintertime I just don't want you guys to Miss it.
And we are.
Really understanding the $40 million can be back end weighted.
Or if it's too backend weighted you'll miss the opportunity to completely so.
But I think we're on the same page and I. Appreciate it all the work you guys are doing all the time.
We can Jeff line as needed.
Yes.
Thank you Brad.
Okay.
And at this time there appear to be no further questions I will turn the call back to Ian for any closing remarks.
Thank you very much.
Thanks, everybody. Thanks for listening. Thank you for your questions. We look forward to giving you an update on <unk>.
Yes.
Discussing our Q3 results.
At the normal time, which would likely be.
Early November .
So we'll talk to you then thanks very much.
Yeah.
Okay.
This does conclude the global ship lease second quarter 2022 earnings Conference call. Thank you all for joining you may now disconnect.
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