United Maritime Corporation (NASDAQ:USEA) Q3 2022 Earnings Conference Call November 16, 2022 10:00 AM ET
Company Participants
Stamatios Tsantanis – Chairman and CEO
Stavros Gyftakis – CFO
Conference Call Participants
Tate Sullivan – Maxim Group
Operator
Good day, and thank you for standing by. Welcome to the United Maritime Corporation Period Ending September 30, 2022 Financial Results Webcast. At this time all participants are in listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions]
I would now like to hand the conference over to your speaker for today, Stamatios Tsantani, you may begin.
Stamatios Tsantanis
Hello. I would like to welcome everyone to the first earnings call of United Maritime. Today we’re presenting the financial figures from the periods from the commencement of operations on July 6, 2022 to September 30, 22. Moreover, I would like to take this opportunity to elaborate on our recent corporate developments and the main pillars of our strategy.
United Maritime was created to take advantage of value opportunities across value shipping sectors for the benefit of our investors. With this in mind, we executed successfully on our first investment cycle, capitalizing on the exceptional performance of the tanker sector, while maintaining our initial exposure in the dry bulk market. Regardless of the current uncertain macroeconomic environment we’re optimistic that our well-defined strategy will continue to create value for our investors.
Let’s start with some financial highlights before discussing our strategy in more detail. This first period was a transitional period for United, since most of our fleet was delivered towards the end of the quarter, thus having a limited contribution to our revenues. However, we recorded a net income of $1 million over an average time charter equivalent rate of $23,639 per day. This performance was based on the significant strengthening of the daily spot rates in the Aframax and the LR2 markets, and the profitable time charter of our only Capesize, the Gloriuship running at a fixed gross rate of $28,000 per day.
The figures I just mentioned do not reflect neither the current rates were enjoying for Q4, nor the very profitable sale of our two Aframax vessels that will be recognized in our Q4 results. Three of our tankers during the period were deployed in the booming spot market. Our fourth tanker was employed under legacy time charter, which was fixed by the previous owners of the ship at a rate of $26,000 per day. This was recently extended at a gross daily rate of $43,500 a day until at least the end of the first quarter of 2023 reflecting more accurately the current earnings environment.
On the back of this commercial arrangements, we’re confident about United’s profitability in the next quarter, as we have covered 88% of our ownership days at an average time charter equivalent rate of $33,200 per day. On top of the strong profit from operations, we expect to recognize an additional profit of more than $90 million in Q4, arising from the sale of the two Aframaxes. This represents a 50% return over the acquisition price and more than 250% realized return on equity within four months.
As regards the remaining two product tankers, given the low acquisition price when compared to current market values, and very favorable market fundamentals, we’re content to continue operating these product tankers at historically profitable rates. Meanwhile, we have already completed two separate stock buyback programs of $6 million by repurchasing approximately 3.3 million shares in the open market at an average price of $1.81 per share. As we firmly believe that our common stock is still significantly undervalued, our Board has authorized a $3 million buyback program.
Lastly, we agreed to proceed with the redemption of our preferred shares issued to Synergy Maritime in connection with a spinoff. Through this transaction we will increase the net income available to our common shareholders and at the same time eliminate the risk of dilution. On the financing front in July, right after the initiation of trading on NASDAQ, we completed a $26 million public equity offering. With this capital we managed to fund our initial growth of our fleet. The offering of units in July was completed at a 76% premium compared to the average recent buyback price.
In addition, our debt currently consists of only fixed rate loans, a decision that proved to be prudent in the current inflationary environment. Moreover, our cash reserves are solid, giving us the flexibility to pursue our strategy of value acquisitions that will generate consistent shareholder returns. In particular, just the cash per share, including the net proceeds from the sale of the two Aframax tankers, our after that and the prepayment of the CDC convertible preferred shares, stands at $4.8 per share. That’s the current cash reserves of the company just from the sale of the two chips, I just mentioned before and after the prepayment of the CDC convertible preferred shares.
The last four months can be considered as the first investment cycle for our company. And this series of accretive transactions illustrates our flexible sector-agnostic and counter cyclical investment strategy. We plan to continue on the same path, but taking advantage of acquisition opportunities in mainstream shipping sectors at attractive valuations based on favorable supply and demand fundamentals.
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 closing remarks. Stavros, please go ahead.
Stavros Gyftakis
Thanks Stamatios. I would like to welcome everyone from my side as well to our first earnings call. Starting off with some financing updates, on the back of the impressive trading performance of the stock following our spinoff, we completed the 26 million public offering. The capital was used accretively to support the acquisition of four tanker vessels at an ideal timing considering the subsequent steep increase of values in market rates. We also secured a $63.6 million loan facility at an attractive fixed interest rate given the rising momentum of interbank rates.
In addition, we concluded the refinancing of $14 million on the loan secured by Gloriuship at a fixed rate reduced by 2.6% as compared to the original interest rate at the transfer of the facility from Synergy. All our financings feature a nine months grace period with amortization, commencing only in the second quarter of 2023. About two months after the delivery of the Aframax tankers, we agreed to sell these vessels securing an impressive return on equity of more than 250%. Following the tank sales, the respective loans will be prepaid in full, reducing the underlying facility to $31.2 million.
Additionally, we agreed to prepay the $14 million Gloriuship facility by $2 million, $1 million was applied against the balloon and the other will be applied against the first two installments of the loan to reduce the underlying breakevens.
Moving on to our financial performance for the period from the commencement of operations on July 6, 2022 to September 30, 2022, net vessel revenue was equal to $7.9 million, while EBITDA was $2.9 million. Net income was $1 million and the daily time charter equivalent rate of the fleet was $23,600.
Continuing to the balance sheet, cash and cash equivalents at the end of the period stood at $21.2 million, shareholders equity was $44.1 million and total debt was $76.3 million. The book value of a fleet stood at $98.2 million. Now using the same price of the Aframax as a proxy for the current market value of oil tankers, our leverage is moderate, standing slightly over 40%.
This concludes my review. I will now turn the call back to Stamatios for his concluding remarks. Stamatios.
Stamatios Tsantanis
Thank you, Stavros. As I mentioned earlier in this call, I’m confident that the tanker market will continue to be robust, at least until the end of 2023. The same thing stands for the dry bulk market, where the gradual improvement of raw material demand and the sharp decline of new vessels allow me to be confident that a strong rebound is around the corner.
Following the recent correction in secondhand Capesize prices we believe there are currently attractive investment opportunities and we view the sector as one of the highest potential upsides at the moment. United Maritime will continue to pursue great value opportunities in the following quarters in order to generate strong returns and rewards to our shareholders.
From here, I would like to turn the call over to the operator and answer any questions you may have. Operator, please take the call.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions]. Please standby while we compile the Q&A roster. Our first question comes from the line of Tate Sullivan with Maxim Group. Your line is open.
Tate Sullivan
Hello, good day, and good talking to you on United Maritime, and congratulations on the meaningful gain from the ship sales in October. And I think I heard you mentioned a gain of greater than $19 million that you’ll mention in 4Q. Can you can you talk about the financial analysis of deciding to sell, I mean, I know it was such a meaningful return in a short period versus continuing to hold on to the ships and continue to generate cash flow at the high rates that you can secure for the ships?
Stamatios Tsantanis
Of course. Good morning, Tate. I hope everything is well.
Tate Sullivan
Thank you.
Stamatios Tsantanis
So basically, the structure and the strategy of United Maritime is to be able to quickly turn profit where we see the opportunity. So we will not sacrifice profit and substantial returns for our shareholders, just for the sake of growing the company into something bigger, for the sake of growth. So we will continue to monitor opportunities to grow the company selectively by finding assets that we believe are — represent good value for our shareholders. And at the same time, we will be looking for the opportunity to sell those assets and capitalize a gain in the profit and possibly reward in kind or in cash our shareholders without having to wait for prolonged periods of time.
This is pretty much the idea of United. That’s how we want to do it. As you know, as a Group, and as management, we have an excellent track record in identifying opportunities and buying ships in low prices. And we will turn that into profit quickly and reward our shareholders at the same time.
Tate Sullivan
Great, thank you. And then also on strategy, United Maritime, thanks for that Stamatios. Across I believe that stated mandate, can you look at opportunities or planning to look at opportunities across the shipping sector? And you mentioned the dry bulk opportunity, but how are you evaluating opportunities across most of that sectors of shipping? Are there some that you may stay away from?
Stamatios Tsantanis
The answer is yes. First of all, let’s start with the capital structure of the company. We intend to maintain a very controlled and disciplined share count, to the extent that we can. I’m not saying that we will not be issuing stock if the price goes at much, much higher levels. But at the same time this management is going to be buying back the stock when we believe it’s completely undervalued as it is now. So we did an offering at a much higher valuation back in July. And at the same time when the stock dropped, we did a massive buyback program which reduced our share count by 25%.
So starting with the capital structure and the share count itself, we have already proven our intentions to maintain a very disciplined share count. So by maintaining a disciplined share count and not doing highly diluting offerings at cents on the dollar, or whatever that is, we will be able to produce profits for our shareholders in a much more disciplined and controlled manner. That’s the intention.
Now moving into the selection of assets, we intend to play along the mainstream sectors of shipping without going into extremities or into places where we don’t have experience. So we will stick to mainstream tankers and mainstream bulkers, where we can identify good value and we will tend to go in and out hopefully more ins than outs in order to grow the company and we can deliver that growth on a more controlled, structured and very disciplined share count.
Tate Sullivan
Great, thank you. And following up on — looking at mainstream tankers and bulkers, is it a matter of the strong market in tankers now? Have there been more transactions historically in the tanker market in terms of the S&P activity versus that the bulker market — or does it totally depend on the strength of the sector?
Stamatios Tsantanis
Well, we think that the tanker market has still a long way to go. But we don’t really see the values of the assets, especially the older assets that we operate to go much, much higher than that. So you will see cash flows. But I’m not sure that the values will go further up from the 20-year highs, or whatever they’re trading right now. So it’s a good opportunity to sell part of the fleet that we recently acquired and maintain a good position on the product tankers, the product, LR2s, which we think will still have a good value for 2023 and onwards. So requiring vessels now after having recently sold ships at the top of the market, I don’t think it makes good sense for us and our shareholders. We will possibly focus in other areas that we believe there’s more value into the near future.
Tate Sullivan
All right. Thank you very much.
Stamatios Tsantanis
Thank you, Tate. Nice to hear from you.
Operator
Thank you. [Operator Instructions]. We do have a follow up question from Tate. One moment please? Tate, your line is open.
Tate Sullivan
Hey, thank you. I decided — I realized I had a couple more please. I think you mentioned an extended rate of $43,500 on one of your ships, and then 88% covered at $38,000, if I heard that correctly. Do you have a rough calculation of the cash breakeven level for your fleet as well to take into account those fixed interest costs as well?
Stamatios Tsantanis
Well, of course, yes. First of all, for Q4, the weighted average time charter equivalent rate for the fleet is $33,200. That excludes the increased rate of the LR2 tanker which is going to start effectively at the end of December and is going to run all the way for Q1 at this much more increased rate. Stavros is going to give you an idea about the all-in breakeven of the fleet in a minute.
Stavros Gyftakis
Hi, Tate, how are you?
Tate Sullivan
Hello. Good, good, thank you.
Stavros Gyftakis
So the operating breakeven is around $9,000 per day, which includes OpEx, G&A, and the various corporate expenses. Then you should calculate around $3,000 to $3,200 for interest per day. And then as I told you — as we discussed previously, in the call, there is no amortization until the second quarter of 2023. The facilities that we concluded, at the time of the spin-off, they had a nine month amortization holiday.
So right now, that’s — your breakeven is comprised of the interest and operating breakeven, which is around $12,000 to $12,500. Then when amortization is kicking, this increases by another $9,000 per day. So basically, you go to around $21,000 to $22,000 per day.
Tate Sullivan
Okay, thank you very much. And then on the current facilities, the bank facility, if you — how much purchasing capacity, if you will, would you have if you fully lever your existing ships to conduct additional acquisitions, and then taking into consideration the additional cash from the ship sales as well?
Stavros Gyftakis
Well, we, we have flexible arrangements with our lender so we can possibly, and potentially buy up to the amount that the equity of the company allows us to acquire, like cash and cash equivalents. So there’s not going to be any restriction on that. It’s just a matter of how much cash we want to spend from the cash reserves of the company. So whether that’s the two ships or three ships or four ships, we don’t know. It can be at least two ships put it this way.
Tate Sullivan
All right, thank you very much for taking my calls as well. Have a great rest of the day.
Stamatios Tsantanis
Thank you, Tate. Bye.
Tate Sullivan
Bye.
Operator
Thank you. I’m showing no further questions in the queue. I would now like to turn the call back over to Stamatios for closing remarks.
Stamatios Tsantanis
Thank you Wanda. So once again from my side, me and Stavros would like to thank everyone for attending our initial inaugural conference call, and we look forward to additional updates and news about United Maritime in the coming weeks. So thank you very much for joining our first call today. Thank you.
Operator
Ladies and gentlemen, this concludes today’s conference call. Thank you for your participation. You may now disconnect.
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