Seaspan Corporation (SSW)

SSW 
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Seaspan Corporation (NYSE:SSW)

Q2 2014 Earnings Conference Call

July 29, 2014 09:00 ET

Executives

Gerry Wang - Chief Executive Officer, Co-Chairman and Co-Founder

Sai Chu - Chief Financial Officer

Analysts

Keith Mori - Barclays

Christian Wetherbee - Citi

Ben Nolan - Stifel Nicolaus

Michael Webber - Wells Fargo

Presentation

Operator

Welcome to the Seaspan Corporation Conference Call to discuss the financial results for the three and six months ended June 30, 2014. 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 - Chief Financial Officer

Thanks, 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 our 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 in the second quarter of 2014 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, 2013 filed with the SEC.

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

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

Gerry Wang - Chief Executive Officer, Co-Chairman and Co-Founder

Thank you, Sai. Ladies and gentlemen, please turn to Slide 3 of the webcast presentation. During Q2, we continue to deliver on our stated strategies. We continue to grow our operating fleet with the delivery of a new eco-class 10,000 TEU vessel. Sorry, we – actually, it took a delivery of more than one vessel. We progress discussions with customers to time charter our vessels and grow our long-term contracted revenue base with demonstrated access to diverse sources of capital to fund our growth.

I will now review our highlights for the second quarter in more detail. First, we ended the quarter with 74 vessels in our operating fleet and then 78 vessels in our managed fleet. We took delivery of our second and third SAVER design containerships, the Hanjin Namu and the Hanjin Tabul, each of which has commanded 10-year time charters with Hanjin. Our operating fleet achieved 99.3% utilization for the quarter and continued to generate stable cash flows from long-term time charters. After the quarter end, we accepted delivery of the MOL Bravo, a 10,000 TEU SAVER design vessel currently on an eight-year time charter with MOL. This is the first of the 10-year charter with MOL. Our newbuilding program has been proceeding smoothly at all the three shipyards, YZJ, HHI and SSBC.

Second, we will progress discussions with our customers to secure long-term time charters for the remaining four 10,000 TEU vessels we ordered during that last quarter. We expect to finalize the charter discussions quite shortly. Further to this, we are also discussing further growth opportunities with several shipbuilders with several of our customers for these kinds of vessels and also larger vessels.

Third, we continue to access diverse sources of capital to fund our growth and improve our capital structure. There has been strong demand for Seaspan as we have raised more than $470 million in various capital market transactions this year. Finally, Seaspan is closely finalizing an expansion of the term of the right of the first refusal agreement with GCI for one year to March 31, 2016. For GCI joint venture we delivered on several important strategic objectives including diversification of funding sources and financial risk management, vessel purchasing economies of scale and operational economies of scale from our management of GCI fleet. Since GCI was formed we have expanded our managed fleet by 40 vessels and we have looked forward to continue our relationship with GCI and working on further growth opportunities.

I will now turn to the call over to Sai, our CFO to discuss our quarterly financial results, capital raises and forward guidance. Sai, please?

Sai Chu - Chief Financial Officer

Thanks Gerry. Please turn to Slide 5 where I will discuss our results for Q2 2014 compared to our Q2 2013. Revenue increased by $6.1 million or 3.6% due to the Hanjin Buddha and Namu 10,000 deliveries in March and May of this year and with two MOL 4600s delivered mid-2013. There were fewer unscheduled off-hire days and off-charter days offset by lower rates on re-charted vessels and an increase of scheduled dry dockings. Vessel utilization was strong at 99.3% compared to 99%. The improvement was primarily a result of fewer – 37 fewer unscheduled off-hire days.

Ship OpEx was $41.1 million, an increase of $3.7 million or 10%. Approximately a quarter of the increase was related to the two larger 10,000 class ships that we took delivery of, 2.2% of the increase was due to higher ownership and managed days reflecting the newbuild deliveries and the two MOL 4600s delivered in 2013. Remainder of the increase in OpEx relates to timing of stores, spares, repairs and ship management infrastructure costs as well as increases to crew wages that took effect in Q3 2013 and Q1 of this year. For the remainder of this year we expect quarterly ship OpEx to increase marginally each quarter as we take delivery of the larger ships, generally in line with the scheduled newbuild or rescheduled.

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