Seaspan Corporation (SSW)

SSW 
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Seaspan Corporation (SSW)

Q3 2012 Earnings Call

October 31, 2012 10:00 AM ET

Executives

Sai Chu – CFO

Gerry Wang – Co-Chairman and CEO

Analysts

Greg Lewis – Credit Suisse

Ross Briggs – Wells Fargo

Presentation

Operator

Welcome to the Seaspan Corporation Conference Call to discuss the Financial Results for the Three and Nine Months Ended September 30, 2012. 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’ll open the call for questions. I will now turn the call over to Sai Chu.

Sai Chu

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 in the third quarter 2012 earnings release and earnings webcast presentation slides available on our website at www.seaspancorp.com, as well as our annual SEC report on Form 20-F for the year ended December 31, 2011.

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, normalized earnings per share, and normalized converted earnings per share.

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

Gerry Wang

Thanks Sai. Good morning from Hong Kong. Please turn to slide three of the webcast presentation. For the third quarter, Seaspan’s business continued to perform in line with our expectations. On the financial side, we managed to achieve growth in revenue, cash available for distribution and normalized net earnings compared with Q3 of 2011. Our board declared dividends on our common stock and our Series C preferred share. The dividend of $0.25 per common share represents 33% increase over Q3 of last year.

Our third quarter operational results were also strong. Our 69 vessel operating fleet remains fully employed on time charters. We achieved 98.9% utilization, this includes 31 days of unscheduled off-hire for the Seaspan Dalian and Seaspan Felixstowe in between the charters, at which time we completed their scheduled drydockings. And another 22 days related to mechanical issues onboard the COSCO Indonesia, which were successful result.

Our newbuilding construction program continues to progress well. The three 10000 TEU fuel efficient vessels are expected to be delivered in 2014 when they will commence operations under charters with Hanjin Shipping for period of 10 years plus an additional two years at the option of Hanjin.

During the quarter, we also continue to take steps to strengthen our balance sheet and capital structure. We secured financing for the three 10000 TEU newbuildings with a leading Chinese bank and we amended our $1.3 billion credit facility reducing the lenders commitment to $1.0 billion and improving our flexibility.

Based on our strong balance sheet and access to capital, we remain quite well positioned to capitalize on the attractive ship acquisition environment and further implement our disciplined growth strategy. We’re committed to providing creditworthy customers with state-of-the-art fuel efficient vessels and creating long-term value for our shareholders.

I would like to turn the call now to Sai to discuss our quarterly financial results. Sai, please?

Sai Chu

Thanks, Gerry. Please turn to slide four for a summary of our results for the quarter and nine months ended September 30, 2012 compared to the results of the comparable period of 2011.

Revenue increased by 8.9% in the third quarter compared to the third quarter of 2011, due to the increased number of operating days and higher time charter rates attributed to the delivery of our larger newbuild vessels in the first half of the year.

Overall, ship operating expenses increased by a lower percentage than our revenue increased. This is consistent with the operating efficiencies achieved by our larger newbuild ships, which have a lower operating cost per TEU. As a result of the acquisition of our Manager, Seaspan Ship Management Ltd. in January of this year and as discussed on prior earnings calls, we now expect ship operating expenses to be more variable on a quarter-to-quarter basis as they are now based on the direct operating costs of the vessel, as opposed to the fixed technical services fees that were in place pre-acquisition.

Ship operating expenses for the third quarter of 2012 decreased 5.8% compared to Q3 of 2011. This decrease was primarily attributable to the reclassification of a portion of the ship operating expenses, because they are not operating in nature, to general and administrative expenses since the closing of the Manager acquisition.

For the three months and nine months ended September 2012, the amounts reclassified were approximately $3.1 million and $7.9 million respectively. From a meaningful comparison from 2011 figures would be appropriate to add back these reclassified amounts to ship operating expenses. On such an adjusted basis, ship operating expense per day for the three months and nine months ended, we have increased by approximately 8.9% and 9.8% respectively compared to the same periods in 2011, primarily due to the increased ownership days resulting from four vessel deliveries in 2012 and a full period of expenses for the 10 vessels that were delivered in 2011.

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