Seaspan Corporation (SSW)

SSW 
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Seaspan Corporation (SSW)

Q3 2013 Earnings Conference Call

October 31, 2013 10:00 AM ET

Executives

Sai Chu - Chief Financial Officer

Gerry Wang - Chief Executive Officer

Analysts

Keith Mori - Barclays

Urs Dur - Clarkson Capital Markets

Justin Yagerman - Deutsche Bank

Ben Nolan - Stifel

Michael Webber - Wells Fargo Securities

Anthony Sibilia - Credit Suisse

Presentation

Operator

Welcome to the Seaspan Corporation Conference Call to discuss the Financial Results for the Three and Nine Months Ended September 30, 2013. Hosting the call today is Gerry Wang, Chief Executive Officer, Co-Chairman, and Co-Founder of Seaspan Corporation and Sai Chu, Chief Financial Officer of Seaspan Corporation.

Mr. Wang and Mr. Chu will be making some introductory comments and then we will open the call for questions.

I will now turn the call over to Sai Chu.

Sai Chu

Thank you, operator. Good morning, everyone, and thank you for joining us today. Before we begin, please allow me to remind you that our discussion today contains forward-looking statements. Actual results may differ materially from results projected by those forward-looking statements.

Additional information concerning factors that could cause actual results to materially differ from those in the forward-looking statements is contained third quarter 2013 earnings release and earnings webcast presentation slides available on our website www.seaspancorp.com, as well as in our annual report on Form 20-F for the year ended December 31, 2012 filed with the SEC.

I would like also to remind you that during this call, we will discuss certain non-GAAP financial measures including adjusted EBITDA, cash available for distribution to class A common shareholders, normalized net earnings, normalized earnings per share, and normalized earnings per share converted. In regards to such financial measures and for reconciliation of such measures to the most closely comparable U.S. GAAP measures, please refer to our earnings release.

I will now turn the call over to Gerry, who will discuss our third quarter highlights as well as some more recent developments.

Gerry Wang

Thanks Sai. Please turn to slide three of the webcast presentation. For Q3 we continued to execute on our strategy and deliver good results. First, our operating fleet performed well during quarter. Second, we expanded our managed fleet to 104 vessels by finalizing a significant newbuild transaction with the Yang Ming Lines by exercising options for large fuel efficient containerships with YSJ. Third we accepted the delivery of a containership charter to MOL growing our operating fleet and near-term cash flows. Finally, we continue to return capital to shareholders in the form of dividends.

I will now review our results for second quarter in more detail. Seaspan’s operating fleet achieved 98.5% utilization and continued to generate producible and stable cash flows from its long term time charters. During Q3, we continued to execute on our growth strategy through two significant transactions with Yang Ming for ten 14000 TEU few efficient server design containerships to be constructed at HHI and the CSBC schedule for delivery in 2005 and 2016. Five of these vessels will be retained by Seaspan. And executing options for the construction of five, 10, 20 a fuel efficient server design containerships at YSJ. Consistent with our strategy, we expect to sign long term time charters for these vessels with one of the land measures shortly. The allocation of those vessels between Seaspan and GCI is to be determined as per the ROFR.

In order to further capitalize for lenders demand for large modern containerships will be actively pursuing additional attractive growth opportunities and growing our fleet and consecutive revenue stream. We will report the transactions as soon as they are closed. We took delivery of the second for 4600 TEU vessels on three years fixed charter to MOL at the beginning of July to reach our current operating fleet of 71 vessels.

Before turning the call over to Sai, I note that only one vessel is currently off-charted and we have secured term charter for one of the other vessels for up to 20 months charter which is actually 22 to 30 months charter with additional option period for eight to 12 month to commence during November 2013.

As a result of our rechartering efforts during the quarter, only one vessel in our fleet is up for recharter for the year 2013 and ‘14 representing approximately 0.5% of our forecast 2014 revenue.

Sai will discuss our quarterly financial results. Sai, please.

Sai Chu

Thanks, Gerry. Please turn to slide four. Revenues increased by $2.5 million or 1.4% in Q3, primarily due to the TEU 4600s chartered to MOLs delivered in June and July and for management fees partially offset by lower rates from five vessels on short term charters during the quarter.

Utilization was 98.5% during the quarter, compared to 98.9% due to 29 days of scheduled dry docks with three of our vessels and 66 days of unscheduled off-hire compared to the 12 days of dry-docking days and 56 days of scheduled off-hire Q3, 2012.

Ship operating expenses increased by $1.1 million or 3% for the quarter. These increases were related to an increase in both ownership and management days for TEU 4600s on charter MOL and vessels managed for MOL as well as an increase in crew wages.

General and administrative expenses increased $2.2 million or 39.1% and by $9.3 million or 51.3% for the quarter and nine months. Increases in G&A are primarily for non-cash stock appreciation rates or SARs, granted to our CEO in December 2012 and certain members of management in March 2013. Total SARs expense was $1.7 million and $9.6 million for the three months and nine months respectively.

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