DRYS

DryShips Inc. (DRYS)

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Exchange: NASDAQ
Industry: Transportation
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DryShips, Inc. (DRYS)

Q4 2012 Results Earnings Call

March 7, 2013 9:00 AM ET

Executives

George Economou - Chairman and CEO

Ziad Nakhleh - Chief Financial Officer

Analysts

Michael Webber - Wells Fargo Securities

Joshua Katzeff - Deutsche Bank

Oliver Corlett - R.W. Pressprich

David Epstein - CRT Capital

Presentation

Operator

Thank you for standing by, ladies and gentlemen. And welcome to the DryShips, Inc. Conference Call on the Fourth Quarter 2012 Financial Results. We have with us Mr. George Economou, Chairman and Chief Executive Officer; and Mr. Ziad Nakhleh, Chief Financial Officer of the company. At this time all participants are in a listen-only mode. (Operator Instructions) I must advise you that this conference is being recorded today on Thursday, March 7, 2013.

Matters discussed in this release may constitute forward-looking statements. Forward-looking statements reflect current views with respect to future events and financial performance, and may include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts.

Please take a moment to read the Safe Harbor statement on page two of the slide presentation. Risks and uncertainties are further described in the report filed by DryShips with the U.S. Securities and Exchange Commission.

And now I'll pass the floor to Mr. Nakhleh. Please go ahead, sir.

Ziad Nakhleh

Okay. Good morning and good afternoon, everyone. For the fourth quarter of 2012, DryShips posted a U.S. GAAP net loss of $129.8 million or $0.34 per share, which includes class survey cost for the Eirik Raude of $43.9 million and loss on the sale of our tankers the Esperona and Blanca of $41.3 million.

For fiscal year 2012, our group reported revenues of $1.2 billion, adjusted EBITDA of $500 million and generated cash from operating activities of close to a quarter of $1 million -- of $1 billion.

Another notable statistic is that our group repaid bank debt of $867.9 million during the year. One may compare the statistics to those of our competitors who have either restructured debt or filed for bankruptcy at this period.

For the remainder of this presentation, we'll be primarily focusing on our shipping segments' operations. For additional information on our drilling segment, please refer to Ocean Rig's fourth quarter presentation available on www.oceanrig.com.

Slide five, in 2012 our shipping corporation were profit and cash negative. On one hand we had above market charters in the Drybulk segment and the other all our tankers and a large number of our bulkers were earning spot rates which were well below our cash break-even levels. For 2012 our average ECA levels were $13.5000 for our tankers and $15.9000 for our bulkers.

On this -- on slide six, we present our 2013 fleet capacity and revenue profile for both our Tanker and Drybulk segments. The major assumption on this slide is that we will take delivery of all our remaining Drybulk newbuildings on order.

As you may have notice, our strategy of the current time is to place all our vessels both dry and wet on the spot markets. While we are not that bullish on prospects for both these segments for this year, we want to be ready for an initial rebound. In this respect, our projected cash flows are ultrasensitive to changes and spot rates.

For example, during 2013, we have almost 13,000 spot fleet capacity days. This means that an additional 10,000 per day increase and average charter rates will result in $130 million of additional EBITDA for our shipping segment.

On to slide seven, here we present our newbuilding -- Drybulk newbuilding program. We have CapEx during 2013 amounting to $253 million much of which is unfinanced. All these vessels are being built in China.

While we have good ties with certain Chinese lenders, we don’t believe the Chinese will take leadership role in international ship finance and through the void created by the merchant of European and European lenders. Note that it is entirely therefore they have been impacted by certain high profile loan workouts.

As we said in the past, we are working with the shipyards to optimize our newbuilding program. Discussions with the yard include deferral of payments and deliveries, discounts and zealous credit, among other items.

At the same time, we have seen some interest in the S&P markets for our vessels. We are actively working on reducing our newbuilding CapEx and expect to make some announcement when we finalize the agreements.

Slide eight, on this slide, we present our Tanker CapEx, which tankers are all being built at Samsung Heavy Industries in Korea. In 2013, we took delivery of three of our last remaining tankers under construction with $107.7 million senior secured term loan facility from ABN AMRO, Korea Development Bank and Korea Trade Insurance Corporation.

Our Tanker newbuilding program is now fully financed and on the watching. We could not have done this without the support from premium yards and banks but we feel are proactive supporting and acting in a concerted manner.

Slide nine, this slide details the secured debt profile of the drybulk and tanker segments as of December 31, 2012. Our shipping segment has approximately 280 million amortization of debt through to the end of 2014. In addition to our secured debt our convertible bonds matures at the end of 2014 and we have some to consider our cash and non-cash options in this respect. It is interesting to note that the drybulk debt amortization in 2013 equates approximately $8000 per drybulk vessel day. Any restructuring of this amount will materially decrease our cash break-even levels.

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