Diana Shipping Inc.
Q3 2020 Earnings Call Transcript

Published: 23 Nov 2020

[Operator:]

Greetings. Welcome to Diana Shipping's 2020 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. At this time, I will turn the conference over to Ed Nebb, Investor Relations for Diana Shipping. Ed, you may begin.

[Edward Nebb:]

Well, thank you, Rob, and thanks to all of you for joining us for the Diana Shipping Inc. 2020 third quarter conference call. The members of the company management team who are with us today include Mr. Simeon Palios, Chairman and Chief Executive Officer; Ms. Semiramis Paliou, Deputy Chief Executive Officer and Chief Operating Officer; Mr. Anastasios Margaronis, President; Mr. Ioannis Zafirakis, Interim Chief Financial Officer, Chief Strategy Officer, Treasurer and Secretary; and Ms. Maria Dede, Chief Accounting Officer.

[Simeon Palios:]

Thank you, Ed. Good morning, and thank you for joining us today to discuss the results of Diana Shipping Inc. for the third quarter of 2020. As a challenging year winds towards a close, the world is still feeling the effect of the COVID-19 pandemic and its impact on people's lives and global economic activity. While recent developments in terms of potential vaccines are promising, in the near-term, we are facing renewed lockdowns due to a resurge of the coronavirus. Such measures will continue to negatively affect the global economy and the market demand for worldwide shipping. In response to these uncertainties, the company has continued to pursue strategies to prudently manage our financial resources, our fleet and our overall operations. To summarize the 2020 third quarter, Diana Shipping reported a net loss of US$13.2 million and a net loss attributed to common shareholders of US$14.6 million for the third quarter of 2020, including a US$6.8 million impairment loss, which resulted from the agreement to sell the vessels Sideris GS and Coronis. This compares to net income of US$1.8 million and net income attributed to common stockholders of US$0.3 million reported in the third quarter of 2019. Time charter revenues were US$42.3 million for the third quarter of 2020, compared with US$53.5 million for the same period of 2019. This decrease was mainly due to the sale of vessels in 2019 and 2020 and decreased average time charter rates. The balance sheet remains challenged with total cash, including restricted totaling US$90.4 million at September 30, 2020. We have taken several steps to strengthen our financial position in recent periods. In July, we repurchased an aggregate amount equal to US$8 million of the outstanding senior unsecured bonds. You may recall that we also extended to refinance several loan facilities during the second quarter to extend their maturities.

[Anastasios Margaronis:]

Thank you, Simeon, and thanks to all who have taken the time and trouble to participate in this quarterly conference call of Diana Shipping Inc. The dry bulk market has responded better than feared to the disruption and upheaval caused by the COVID-19 pandemic. This will be discussed further later on in the short presentation. For now, we can look at the bulk carrier indices and compare where these stood at the beginning of the year and at what levels they closed last Friday, November 20. On January 2 this year, the BDI stood at 976. By last Friday, it closed at 1,148. The Baltic Panamax Index started the year at 1,003 and closed at the end of last week at 1,353. The Baltic Cape Index was at 1,646 on January 2 and ended last week at 1,435. Let us not look at the effects of the pandemic, and then we pardon, on the major economies of the world and its effects on world trade and world growth. According to Howe Robinson, the current recession caused by the COVID-19 pandemic is unique in the economic sectors it has hit hardest. Usually, these are the heavy and capital goods industries, or in the case of financial crisis, the banking sector. However, this time, what were normally relatively immune sectors such as retail, entertainment arts, hotels, restaurants have contracted by between 15% and 25% in the OECD during the first-half of 2020 and more since then, while manufacturing, mining, construction and power utilities have been less hard hit. Agriculture and the financial and insurance industries have remained more or less unchanged, while seaborne grain movements, as we will see later, are expected to rise significantly. According to the IMF and OECD, world GDP will shrink by 4.4% this year, mainly due to the COVID-19 pandemic. In 2021, there are hopes that growth will return and GDP growth for the world as a whole will be about 5.2%. No doubt these numbers will be revised several times over the next few months, depending on developments with the pandemic and the vaccination process that is when vaccines will become available to the world population as a whole.

[Ioannis Zafirakis:]

Thank you, Stasi. Good morning to everyone. I'm pleased to be discussing today with you the Diana's operational results for the third quarter and 9 months ended September 30, 2020. During the third quarter, we recorded a net loss attributed to common stockholders of $14.6 million or $0.17 per share, and that included an impairment loss of $6.80 million. As you are probably aware, in 2019, we sold six of our vessels and in the third quarter of 2020 another two, which are about to be delivered to the new owners. And that decrease the ownership base this quarter to 3.719 -- 3,719 compared to 4,027 for the same quarter in 2019. The fact that we had less ownership days together with deteriorated market conditions led to lower revenues of $42.3 million compared to $53.5 million for the same quarter in 2019. Voyage expenses were $2.9 million compared to $3.3 million for the same quarter in 2019, and the decrease in revenues resulted to decreased daily time charter equivalent rate, which was at $10,735 compared to $12,682 for the same quarter of 2019. The fleet utilization was at 97.3% compared to 99.4% the same quarter last year. During the quarter in discussion, our vessels operating expenses decreased to $21.3 million compared to $22 million of last year. Of course, the total number of operating expenses was lower than the previous year, and this is why the daily operating expenses were increased to $5,732 compared to $5,458 for the same quarter of 2019. Everybody has to understand that this increase is mainly due to increased crew expenses and other COVID-19 related issues. General and administrative expenses increased to $9.5 million compared to $7.1 million for the same quarter last year, and this was mainly due to one-off accelerated vesting of restricted share, which resulted to increase compensation costs on restricted cost -- on restricted stock of . On the other hand, we are very satisfied that interest in finance continued to decrease in this quarter due to the decreased interest rates and decreased average debt, and that was strengthened by the repurchase of the 8 million of our bonds. Now for the month -- the 9 months ended September 30, 2020, net loss attributed to common stockholders amounted to $131 million, or $1.53 per share. But again, this included the $102.5 million impairment loss and $1.1 million loss from the sale of vessels. The time charter revenues decreased to $127.1 million compared to $169.2 million for the same period last year, and that was due to the same reasons that we mentioned earlier. Similarly, the daily time charter equivalent rate decreased to $10,900 per day, compared to $12,961 of last year. Again, fleet utilization was at 97.3% compared to 99.2% in 2019, and that was due to extended delays faced at ports due to COVID-19 issues and the increased number of dry docks -- scheduled dry docks that we had for that period. The vessel operating expenses amounted to $63.4 million compared to $67.2 million for 2019. The decrease in operating expenses was due to the decrease in ownership days and was offset by increased operating expenses in insurance expense, repairs and taxes. Daily operating expenses in 2020 were $5,639 compared to $5,367 for 2019. The general and administrative expenses, again as we said earlier, regarding the third quarter for the 9 months increased to $25.7 million compared to $20.8 million in 2019. And as I said earlier, that was because of the accelerated vesting of restricted shares of Board members, which was due to the company's restructuring in 2020 and its complete separation from performance shipping inc. Interests and finance costs amounted to $16.9 million, significantly lower compared to $22.7 million of last year. And again, we are very satisfied with that. Thank you for your attention. And I would like now to turn the call to the operator, who will instruct you as to the procedure for asking questions.

[Operator:]

Thank you. At this time, we will be conducting a question-and-answer session. Thank you. Our first question comes from the line of Randy Giveans with Jefferies. Please proceed with your questions.

[Randall Giveans:]

How are you team, Diana? How's it going?

[Simeon Palios:]

Hi, Randy.

[Randall Giveans:]

Hey, and then great to hear you again, Simeon. Hope you're feeling well.

[Simeon Palios:]

Thank you very much. I’m doing very well, indeed.

[Randall Giveans:]

Sounds like a good deal. Well, looking at your fleet, you recently sold the Sideris GS, the Coronis, what will you do with the proceeds? And maybe any plans for additional vessel sales here in the next few months?

[Simeon Palios:]

Yes, it is our intention to sell some of our old tonnage. We have not decided yet which vessels we are going to be selling in the next quarter or so. Definitely, we are talking about one or two vessels to be sold in the next quarter. The good thing is that selling our vessels is a conscious decision that we do not because we have a plan for the money that we are going to get. I mean, we are not pressed by anything to do so. So, we think that taking it slowly, we're going to have a good average as regards the sale of our vessels that they are of the vessels that they have been built many years ago. And, of course, they are -- the first candidates, they are the vessels that they are on mortgage as we speak. We have not, as I said at the beginning, made up our minds yet which vessels we're going to be selling during the next quarter, but we will know soon.

[Randall Giveans:]

Okay. And then I know in July you repurchased 8 million of those unsecured notes, but none in maybe the recent months. So is that a target here for use of cash going forward? Is it the unsecured notes? Is it common shares? Is it just kind of keeping it on the balance sheet in a more defensive posture?

[Simeon Palios:]

Yes, we're going to take, again, a defensive position. So the first option of ours that we are considering is to keep the money aside. Then I'm taking them again on order. Then the second option is to buy back our bonds, part of our bond. The third option is to buy back our shares, and the fourth option is to buy more vessels. Again, I want to stress to have your attention in what I was saying earlier, that we are the rulers of our destiny and we are in a very strong position to have the option to decide what we want to do with the cash, with the vessels that we have for sale, et cetera. And this is the best position that a company would be as we speak today.

[Randall Giveans:]

Okay. That makes sense. And I guess one quick modeling question. G&A fell pretty materially from the first quarter to the second quarter, but then increased again in the third quarter. So just trying to get a modeling guidance, I guess, for the fourth quarter and in 2021 for G&A.

[Simeon Palios:]

Okay. As we said in the -- in my speech earlier, the third quarter numbers that we show, they were highly increased because of accelerated vesting -- of an accelerated vesting of shares of two Board members that they have left our company and also accelerated shares of a company owned by Mr. Palios because of the restructuring that we said that we have to do and the fact that we have nothing to do now with Performance Shipping. We are completely separated. So you should not expect to have this type of G&A. So I will suggest that they're going to be -- they're going to look like the first quarter of 2019 rather than anything else.

[Randall Giveans:]

Got it. All right. Well, that's it for me. Thanks, again, and happy Thanksgiving from here in the U.S.

[Simeon Palios:]

Same to you.

[Operator:]

The next question is from the line of Omar Nokta with Clarksons Platou. Please proceed with your questions.

[Omar Nokta:]

Thank you. Hey, guys. I just wanted to maybe follow-up on Randy's questions about the debt and whatnot. It was helpful. And I think it's fairly consistent with what you said earlier in the year about the options. You've got the cash. You leaving the balance sheet, option one, then buy back the bonds, then stocks and then ships. I know that you mentioned the 8 million buyback of the Norwegian bonds in July. And I remember from the last call you had outlined your adjusted debt repayment schedule, which would be $10 million a quarter for each of the third and fourth quarters, and then a total of $40 million in 2021. Is that still relatively the same amount for as we look here for the fourth quarter and for next year?

[Ioannis Zafirakis:]

That is correct. The maturities today, as we speak, we are talking about in 2021, we have zero maturities and the only thing you have is amortization of debt. And in 2022, if we do not exercise the option that we have in Nordea is going to be around $100 million. Of course, you have to understand that most probably the Nordea option is going to be exercised and our main target now and we have to see what we're going to do and we will start from the beginning of next year is to try and bring forward everything we have for 2023, that we have the maturity of the bonds as well. So we will be very active to that respect. And this is one of our targets. I know that someone may consider 2023 being far away, but as you know how we operate and we will try to make it better and we will start from the beginning of next year.

[Omar Nokta:]

Okay. Thanks, Ioannis, for that. And maybe just for clarity, you mentioned I know the Nordea loan or the bank facility due in 2022, there is an option feature and you mentioned it's $100 million that’s due if you do not exercise the option?

[Ioannis Zafirakis:]

Yes. The maturities for 2021 -- sorry, 2022, it's $108 million. We are talking about Nordea having $42 million in March, if we do not exercise the option in March 2022. But we have no reason to believe that this is not going to be exercised and accepted by Nordea.

[Omar Nokta:]

Okay. So that would -- if everything is exercised and approved and that would imply something closer to maybe $65 million, $70 million?

[Ioannis Zafirakis:]

Yes.

[Omar Nokta:]

Okay. And then just one other question just on the -- Randy mentioned the Coronis and the Sideris vessels that were sold. Are those still on track to close in the first quarter with roughly maybe $17 million, $18 million of cash coming?

[Ioannis Zafirakis:]

We are trying for the one vessel to finalize and complete the sale during the fourth quarter of 2020. We think that we have a good probability of achieving that, and the next one looks like being in the first quarter of 2021.

[Omar Nokta:]

Okay. Thank you. Got it. All right. That's it for me. Thanks, guys.

[Operator:]

Thank you. At this time, I will turn the floor back to management for closing remarks.

[Simeon Palios:]

Thank you again for your interest in and support to Diana Shipping. We look forward to speaking with you in the future. Thank you.

[Operator:]

Thank you. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.