Diamond S Shipping Inc., one of the largest publicly listed owners and operators of crude oil and product tankers, yesterday announced results for the third quarter of 2019.
Highlights for the Third Quarter and Recent Events
— Reported net loss attributable to Diamond S of $25.9 million, or net loss of $0.65 basic and diluted earnings per share (“EPS”), and Adjusted EBITDA (see Non-GAAP Measures section below) of $34.0 million. Excluding the loss on vessel sales of $18.3 million, the net loss was $7.6 million, or $0.19 per share.
— Sold two 2008-built MR vessels, the Atlantic Aquarius and Atlantic Leo, generating approximately $11.3 million of liquidity before settlement of working capital. A non-cash write-off of $18.3 million was recognized in connection with the vessel sales.
— Net debt at September 30, 2019 was $819.2 million implying a net debt to asset value leverage ratio of 48% based on most recent available broker valuations.
— As of November 8, fixed 62% of Crude Fleet revenue days at $43,000 per day and 63% of Product Fleet revenue days at $13,500 per day in the fourth quarter of 2019.
Craig H. Stevenson Jr., President and CEO of Diamond S, commented: “While market conditions remained relatively soft in the third quarter, the sudden and dramatic rise in crude tanker rates suggests that the market was much tighter than rates implied. Diamond S is well positioned to generate substantial cash flow in a strong market due to the large size of our fleet, our high level of spot market exposure and our highly competitive breakeven costs. Crude tanker rates have stabilized at much higher levels, and we anticipate that product tanker rates will follow suit. We expect disruption and volatility across both segments as the industry makes its final preparations for IMO 2020 and believe that the regulation will be a catalyst for further improvements.”
Third Quarter 2019 Results
Net loss attributable to Diamond S for the third quarter of 2019 was $25.9 million, or $0.65 per basic and diluted share, compared to a net loss of $22.0 million, or $0.81 per basic and diluted share, in the third quarter of 2018. Excluding the impact of a loss on vessel sales of $18.3 million, net loss for the third quarter of 2019 was $7.6 million, or $0.19 per share. The decrease in net loss in the third quarter of 2019 is primarily related to an increase in the number of vessels as a result of the Merger1 and improved tanker market conditions in both the crude and product tanker segments.
The Company groups its business primarily by commodity transported and segments its fleet into a 16-vessel crude oil transportation fleet (the “Crude Fleet”) and a 50-vessel refined petroleum product transportation fleet (the “Product Fleet”). The Crude Fleet consists of 15 Suezmax vessels and one Aframax vessel. The Product Fleet consists of 44 medium range (“MR2”) vessels and 6 Handysize (“MR1”) vessels.
Net revenues for the Company, which represents voyage revenues less voyage expenses, were $81.6 million for the third quarter of 2019 compared to $39.6 million in the third quarter of 2018. Net revenues from the Crude Fleet were $23.3 million in the third quarter of 2019 compared to $14.7 million in the third quarter of 2018. Net revenues from the Crude Fleet increased due to the impact of four additional vessels acquired as part of the Merger1and stronger market conditions in the third quarter of 2019 as compared to the third quarter of 2018 partially offset by higher than expected offhire primarily related to the installation of two exhaust gas cleaning systems, or scrubbers. Net revenues from the Product Fleet were $58.3 million in the third quarter of 2019 compared to $24.9 million in the third quarter of 2018. The increase in net revenues in the Product Fleet was driven by the additional 21 vessels acquired in the Merger1 partially offset by an increase in off-hire time primarily related to vessel sales, four drydockings and other repairs.
Vessel expenses were $41.8 million for the third quarter of 2019 compared to $27.0 million in the third quarter of 2018. Vessel expenses, which include crew costs, insurance, repairs and maintenance, lubricants and spare parts, technical management fees and other miscellaneous expenses, increased $14.8 million primarily due to the increase in the size of the fleet following the Merger1, net of the sale of the two MR vessels in the third quarter of 2019.
Depreciation and amortization expense was $28.8 million in the third quarter of 2019 compared to $22.3 million in the third quarter of 2018. The increase in depreciation and amortization expense was primarily due to the depreciation of the 25 vessels acquired in the Merger1, which was partially offset by the sale of two MR2 vessels in the fourth quarter of 2018, and two MR2 vessels in the third quarter of 2019.
General and administrative expenses were $7.6 million in the third quarter of 2019 compared to $3.7 million in the third quarter of 2018. The increase was due to higher legal and accounting professional fees related to regulatory filings and an increase in headcount required to maintain the infrastructure for public company reporting standards and vessel management of a larger fleet employed in the spot market.
Interest expense was $13.0 million in the third quarter of 2019 compared to $9.3 million in the third quarter of 2018. Interest expense increased in the third quarter of 2019 due to an increase in debt borrowings as a result of financing the 25 vessels acquired in the Merger1.
Other income was $0.5 million, which consists primarily of interest income, was unchanged in the third quarter of 2019 compared to the third quarter of 2018.
As of September 30, 2019, the Company had $81.1 million in cash and restricted cash. Restricted cash and minimum cash required by debt covenants was $55.5 million. The Company also had $5.5 million in available lines of credit as of September 30, 2019.
Fourth quarter earnings thus far have improved compared to the third quarter, particularly for the Crude Fleet. Temporary sanctions impacting a large number of vessels led to a spike in rates for available ships in the market. Diamond S was able to capitalize on a number of available voyages before the market corrected to above seasonal levels. As of November 8, approximately 62% of the Crude Fleet revenue days have been fixed at $43,000 per day. While the Product Fleet during the fourth quarter has been impacted by seasonal refinery turnarounds, we expect rates to improve given the high correlation between crude and product tanker rates. As of November 8, approximately 63% of the Products Fleet revenue days have been fixed at $13,500 per day.
Looking forward, the Company anticipates further disruptions that we expect to impact available tanker supply. These include disruptions relating to the implementation of new limits of sulfur emissions that come into effect on January 1, 2020 and potential disruptions related to exogenous geopolitical events. The orderbook across all tanker segments is at relatively low levels and is not expected to disrupt the thin balance between supply and demand that can result in heightened volatility and occasional rapid increase in daily vessel rates. The demand outlook is also constructive as oil production is increasing in areas geographically distant from areas with increasing oil demand, creating incremental demand for seaborne transportation. The Company believes that its Crude Fleet and Product Fleet both offer very favorable exposure to these dynamics and that it is well positioned to generate substantial earnings in a strong rate environment due to its competitive breakeven levels.