Paragon Shipping Inc. Reports Second Quarter And Six Months Ended June 30, 2014 Results
Paragon Shipping Inc., a global shipping transportation company specializing in drybulk cargoes, announced its results for the second quarter and six months ended June 30, 2014.
Second Quarter 2014 Highlights
• Net revenue, net of voyage expenses of $9.7 million in the second quarter of 2014
• Reduced average daily vessel operating expenses by 12.0\% year-over-year
• Adjusted EBITDA of $0.9 million in the second quarter of 2014
• Adjusted net loss of $5.6 million, or $0.23 per common share in the second quarter of 2014
Management Commentary
Commenting on the results, Michael Bodouroglou, Chairman and Chief Executive Officer of Paragon Shipping, stated, “For the second quarter of 2014, the drybulk market, and more specifically the market for Panamax vessels, was weaker than expected. The Baltic Panamax Index 4 time charter routes average in the second quarter of 2014 was $6,304 per day, compared to $10,427 per day in the first quarter of 2014 and $7,775 per day in the second quarter of 2013, which represents a decline of 39.5\% and 18.9\%, respectively. Although we continued to outperform the market during the quarter, earning an average TCE rate of $7,870 per vessel per day, the overall decline in the market rates had a direct impact on our second quarter results, as we reported a net loss of $9.7 million, or $0.39 per common share. As we continue to expand our fleet, we will continue to take advantage of economies of scale and cost-cutting measures. In the second quarter of 2014, we reduced our daily vessel operating expenses by 12.0\% year-over-year. For the quarter, the non-cash items that were recorded totaled a loss of $4.1 million, or $0.16 per common share, including a $3.1 million loss in our investment in Box Ships. After excluding same, adjusted EBITDA was $0.9 million and adjusted net loss was $5.6 million, or $0.23 per common share.”
Mr. Bodouroglou continued, “During the second quarter of 2014, we strengthened the Company’s balance sheet and focused on improving our cash flow break even rates. More specifically, we successfully secured debt financing for six of our seven newbuilding vessels, while at the same time we refinanced the indebtedness of seven of our operating vessels at more favorable terms, especially with regard to debt amortization profile and financial covenant restrictions. Subsequent to the quarter, we also entered into supplemental agreements with several of our lenders, pursuant to which we either extended the waiver period or, in some instances, eliminated the EBITDA related covenants completely. In addition, in August 2014, we completed an offering of $25.0 million of senior unsecured notes due 2021. We intend to use substantially all of the net proceeds from the offering, which are expected to amount to approximately $23.9 million, for the repayment of existing indebtedness. We have already agreed with one of our lenders to reduce their current loan outstanding in return for a streamlined repayment profile and the removal of all but the leverage related covenants from the respective loan agreement, which will reduce our cash flow break even levels further.”
Mr. Bodouroglou concluded, “On the basis of a stronger balance sheet, we will continue to focus on our strategy of conservative growth by selectively taking advantage of investment opportunities, while preserving our moderate leverage profile, which we expect, assuming future improvement in the drybulk market, will eventually enable the Company to resume paying cash dividends to its shareholders.”
Newbuilding Program Update
On April 25, 2014, the Company entered into a memorandum of agreement for the sale of its 4,800 TEU containership to an unrelated third party for $42.5 million, less 3\% commission. In addition, in May 2014, the Company agreed with the shipyard to reduce the contract price of this vessel by $0.8 million. The sale of the respective vessel and its transfer to the new owners was concluded on May 23, 2014. Taking into account the reduction in the contract price, the sale of the vessel resulted in a positive net cash inflow to the Company of approximately $10.1 million.
The Company’s current newbuilding program consists of two Ultramax drybulk carriers (Hull numbers DY152 and DY153) with expected deliveries in 2014, as well as two Ultramax drybulk carriers (Hull numbers DY4050 and DY4052) and three Kamsarmax drybulk carriers (Hull numbers YZJ1144, YZJ1145 and YZJ1142) with expected deliveries in 2015. The Company’s newbuilding program has an aggregate cost of $201.2 million, of which $138.6 million is currently outstanding. With the $160.0 million syndicated secured loan facility led by Nordea Bank Finland Plc (“Nordea”) and the $47.0 million secured loan facility with HSH Nordbank AG (“HSH”), the Company has currently secured debt financing for all of its four Ultramax and two of its Kamsarmax newbuilding drybulk carriers of up to $112.4 million, in the aggregate.
Financing Update
On August 1, 2014, the Company agreed with HSBC Bank Plc (“HSBC”), to extend the existing waivers for the financial covenants relating to the minimum interest and debt service coverage ratios, from June 30, 2014 to December 31, 2015.
On July 30, 2014, the Company received a commitment letter from Unicredit Bank AG (“Unicredit”), according to which, subject to certain closing conditions, including a $7.0 million prepayment, the financial covenants relating to the minimum debt service coverage ratio, the minimum market value adjusted net worth and the maximum leverage ratio, will be eliminated until the maturity of the loan. In addition, under the terms of the commitment letter, the required ratio of the fair market value of mortgaged vessels to outstanding loan will be increased from 110\% to 130\% at all times.
On July 25, 2014, the Company agreed with Bank of Ireland to eliminate the financial covenant relating to the minimum debt service coverage ratio until the maturity of the loan.
Pursuant to the $47.0 million secured loan facility with HSH, on July 7, 2014, the Company completed the refinancing of the M/V Friendly Seas. The Company drew a total amount of $12.6 million and repaid in full the then outstanding indebtedness under its existing loan agreement with HSH (dated July 31, 2008). The remaining undrawn portion of the facility, in the amount of up to $34.4 million, will be used for the partial financing of the two Ultramax newbuilding drybulk carriers with Hull numbers DY152 and DY153.
Pursuant to the $160.0 million syndicated secured loan facility led by Nordea, on June 10, 2014, the Company completed the refinancing of the six vessels of its operating fleet (the four Handysize vessels M/V Prosperous Seas, M/V Precious Seas, M/V Priceless Seas and the M/V Proud Seas, and the Panamax vessels M/V Coral Seas and M/V Golden Seas). The Company drew a total amount of $81.8 million and repaid in full the then outstanding indebtedness under the loan agreements with Bank of Scotland (dated December 4, 2007) and Nordea (dated May 5, 2011). The remaining undrawn portion of the facility, in the amount of up to $78.0 million, will be used for the partial financing of the two Ultramax newbuilding drybulk carriers with Hull numbers DY4050 and DY4052, and the two Kamsarmax newbuilding drybulk carriers with Hull numbers YZJ1144 and YZJ1145.
Senior Unsecured Notes Due 2021
On August 8, 2014, the Company completed the offering of 1,000,000 senior unsecured notes due 2021 (“Notes”), pursuant to its effective shelf registration statement. The Notes were issued in minimum denominations of $25.00 and integral multiples of $25.00 in excess thereof, and bear interest at a rate of 8.375\% per year, payable quarterly on each February 15, May 15, August 15 and November 15, commencing on November 15, 2014. The Notes will mature on August 15, 2021, and may be redeemed in whole or in part at any time or from time to time after August 15, 2017. The Company intends to use substantially all of the net proceeds from the offering, which are expected to amount to approximately $23.9 million, for the repayment of existing indebtedness.
2014 Share Buyback Program
Pursuant to the Company’s share buyback program, during the second quarter of 2014 and as of the date of this press release, the Company has purchased and cancelled 30,000 of its common shares at an average price of $5.6820 per share.
Second Quarter 2014 Financial Results
Gross charter revenue was $14.7 million for each of the second quarters of 2014 and 2013. The Company reported a net loss of $9.7 million, or $0.39 per basic and diluted share, for the second quarter of 2014, calculated based on a weighted average number of basic and diluted shares outstanding for the period of 24,281,164 and reflecting the impact of the non-cash items discussed below. For the second quarter of 2013, the Company reported net income of $17,032, or less than $0.01 per basic and diluted share, calculated based on 11,041,107 and 11,133,500 weighted average number of basic and diluted shares, respectively.
Excluding all non-cash items described below, the adjusted net loss for the second quarter of 2014 was $5.6 million, or $0.23 per basic and diluted share, compared to adjusted net loss of $0.1 million, or $0.01 per basic and diluted share, for the second quarter of 2013.
EBITDA for the second quarter of 2014 was negative $2.2 million, compared to positive $6.2 million for the second quarter of 2013. EBITDA for the second quarter of 2014 was calculated by adding the net loss of $9.7 million to net interest expense, including interest expense from interest rate swaps, and depreciation that in the aggregate amounted to $7.5 million. Adjusted EBITDA, excluding all non-cash items described below, was $0.9 million for the second quarter of 2014, compared to $6.1 million for the second quarter of 2013.
The Company operated an average of 14.0 vessels during the second quarter of 2014, earning an average TCE rate of $7,870 per day, compared to an average of 13.0 vessels during the second quarter of 2013, earning an average TCE rate of $10,476 per day.
Total adjusted operating expenses, which included vessel operating expenses, management fees, general and administrative expenses and dry-docking costs, and excluded share-based compensation, equaled $8.9 million for the second quarter of 2014, or 5.3\% lower than the adjusted operating expenses of $9.3 million for the second quarter of 2013, despite having a larger fleet. On a daily basis, adjusted vessel operating expenses for the second quarter of 2014 were approximately $6,950 per vessel per day, or 12.0\% lower than the adjusted vessel operating expenses of approximately $7,900 per vessel per day for the second quarter of 2013, as a result of the Company’s cost control efficiency and the economies of scale of having a larger fleet.
The gain from the sale of assets of $0.4 million for the second quarter of 2014, relates to the gain on the sale of the 4,800 TEU containership newbuilding, following the $0.8 million discount in its contract price that was agreed with the shipyard as discussed above.
As of June 30, 2014, the Company owned approximately 11.2\% of the outstanding common stock of Box Ships Inc. (TEU) (“Box Ships”), a former wholly-owned subsidiary of the Company which successfully completed its initial public offering in April 2011. The investment in Box Ships is accounted for under the equity method and is separately reflected on the Company’s unaudited condensed consolidated balance sheets. Based on the unaudited financial statements reported by Box Ships on September 2, 2014, for the second quarter of 2014, the Company recorded income of $18,425, representing its share of Box Ships’ net income for the period, compared to $0.4 million income for the second quarter of 2013.
In the second quarter of 2014, the Company recorded a non-cash loss of $0.2 million relating to the dilution effect from the Company’s non-participation in the public offering by Box Ships of 5,500,000 of Box Ships’ common shares, which was completed on April 15, 2014. In addition, as of June 30, 2014, the difference between the fair value and the book value of the Company’s investment in Box Ships was considered to be other than temporary and therefore the investment was impaired and the Company recorded a non-cash loss of $2.9 million.
Six months ended June 30, 2014 Financial Results
Gross charter revenue was $28.9 million for each of the first six months of 2014 and 2013. The Company reported a net loss of $35.5 million, or $1.56 per basic and diluted share, for the six months ended June 30, 2014, calculated based on a weighted average number of basic and diluted shares outstanding for the period of 22,414,824 and reflecting the impact of the non-cash items discussed below. For the six months ended June 30, 2013, the Company reported a net loss of $3.5 million, or $0.31 per basic and diluted share, calculated based on a weighted average number of basic and diluted shares of 11,016,733.
Excluding all non-cash items described below, the adjusted net loss for the six months ended June 30, 2014 was $11.6 million, or $0.51 per basic and diluted share, compared to adjusted net loss of $2.9 million, or $0.26 per basic and diluted share, for the six months ended June 30, 2013.
EBITDA for the six months ended June 30, 2014 was negative $21.2 million, compared to positive $8.7 million for the six months ended June 30, 2013. EBITDA for the six months ended June 30, 2014 was calculated by adding the net loss of $35.5 million to net interest expense, including interest expense from interest rate swaps, and depreciation that in the aggregate amounted to $14.3 million. Adjusted EBITDA, excluding all non-cash items described below, was $1.2 million for the six months ended June 30, 2014, compared to $9.3 million for the six months ended June 30, 2013.
The Company operated an average of 14.0 vessels during the six months ended June 30, 2014, earning an average TCE rate of $8,208 per day, compared to an average of 12.8 vessels during the six months ended June 30, 2013, earning an average TCE rate of $10,930 per day.
Total adjusted operating expenses, which included vessel operating expenses, management fees, general and administrative expenses and dry-docking costs, and excluded share-based compensation, equaled $18.5 million for the six months ended June 30, 2014, or 5.1\% lower than the adjusted operating expenses of $19.5 million for the six months ended June 30, 2013, despite having a larger fleet. On a daily basis, adjusted vessel operating expenses for the first six months of 2014 were approximately $7,331 per vessel per day, or 12.7\% lower than the adjusted vessel operating expenses of $8,399 per vessel per day for the first six months of 2013, as a result of the Company’s cost control efficiency and the economies of scale of having a larger fleet.
The impairment loss of $15.7 million for the six months ended June 30, 2014, relates to the write down to fair value of the contract price of the 4,800 TEU containership newbuilding, as a result of the increased probability of selling the respective vessel as of March 31, 2014.
The gain from the sale of assets of $0.4 million for the six months ended June 30, 2014, relates to the gain on the sale of the 4,800 TEU containership newbuilding, following the $0.8 million discount in its contract price that was agreed with the shipyard as discussed above.
Based on the unaudited financial statements reported by Box Ships on September 2, 2014, for the six months ended June 30, 2014, the Company recorded a loss of $0.3 million, representing its share of Box Ships’ net loss for the period, compared to $1.0 million income for the six months ended June 30, 2013.
In the six months ended June 30, 2014, the Company recorded a non-cash loss of $0.2 million relating to the dilution effect from the Company’s non-participation in the public offering by Box Ships of 5,500,000 of Box Ships’ common shares, which was completed on April 15, 2014. In addition, as of March 31, 2014 and June 30, 2014, the difference between the fair value and the book value of the Company’s investment in Box Ships was considered to be other than temporary and therefore the investment was impaired and the Company recorded a non-cash loss of $2.8 million and $2.9 million in the first and second quarter of 2014, respectively. Both items are included in “Loss on investment in affiliate” in the unaudited condensed consolidated statements of comprehensive loss at the end of this release.
Six months ended June 30, 2014 Non-cash and One-off Items
The Company’s results for the six months ended June 30, 2014 included the following non-cash items:
Impairment loss of $15.7 million, or $0.69 per basic and diluted share.
Gain from sale of assets of $0.4 million, or $0.02 per basic and diluted share.
Gain from marketable securities, net of $11,598, or less than $0.01 per basic and diluted share.
Loss on investment in affiliate of $5.9 million, or $0.26 per basic and diluted share.
An unrealized gain on interest rate swaps of $0.1 million, or less than $0.01 per basic and diluted share.
Non-cash expenses of $1.4 million, or $0.06 per basic and diluted share, relating to share based compensation to the management company amounting to $0.9 million and to the amortization of the compensation cost recognized for non-vested share awards issued to executive officers, directors and employees amounting to $0.5 million.
Write off of financing expenses of $1.5 million, or $0.07 per basic and diluted share.
In the aggregate, these non-cash items decreased the Company’s earnings by $23.9 million, which represents a $1.05 decrease in earnings per basic and diluted share, for the six months ended June 30, 2014.
Cash Flows
For the six months ended June 30, 2014, the Company’s net cash used in operating activities was $0.3 million, compared to net cash generated from operating activities of $1.9 million for the six months ended June 30, 2013. For the six months ended June 30, 2014, net cash used in investing activities was $63.9 million and net cash from financing activities was $55.2 million. For the six months ended June 30, 2013, net cash used in investing activities was $41,292 and net cash used in financing activities was $7.9 million.
Source: Paragon Shipping Inc.
