DryShips reports 1Q loss; acquires suezmax newbuilding

DryShips

DryShips, a diversified owner of ocean going cargo vessels, announced its unaudited financial and operating results for the quarter ended March 31, 2017.

Updated Key Information as of May 10, 2017:

  • Cash and cash equivalents: approximately $340.7 million (or $5.05 per share)
  • Book value of vessels, net: approximately $286.2 million (or $4.25 per share)
  • Sifnos Loan Facility balance: approximately $200.0 million
  • Number of Shares Outstanding: 67,401,964

New Acquisitions

On May 10, 2017, the Company entered into an agreement with an entity affiliated with the Company’s Chairman and CEO, Mr. George Economou, to acquire one 158,000 deadweight tons Suezmax tanker currently under construction in China. The Company will finance the total gross purchase price of approximately $64.0 million using cash on hand and expects to take delivery of the vessel during May 2017. The vessel will be time chartered back to the seller and employed from the time of delivery under a five year time charter plus optional periods in charterer’s option at a base rate plus profit share. The charterer will also be granted purchase options at the end of each firm period. The total expected backlog under the time charter, assuming an average spot market for Suezmaxes for the next 5 years of $25,000 per day is estimated to be approximately $43.1 million.

The transaction was approved by the audit committee of the Company’s Board of Directors and the independent members of the Company’s Board of Directors.

Bank Update

The Company has now fully repaid its last commercial loan facility and following the Sifnos Loan Facility’s latest amendment, announced on April 10, 2017, the Company has completed the restructuring of its balance sheet over the last 6 months, resulting in all of the Company’s assets being unencumbered.

Earlier this month, the Company received a firm commitment from a major European bank and an Asian export credit agency for a secured term loan facility of up to $200 million to partly finance the delivery of its four Very Large Gas Carriers (VLGCs). The commitment remains subject to documentation and successful syndication.

Recent Equity Issuances and Use of Proceeds

The Company has raised approximately $570 million of equity over the last six months that has been deployed to acquire modern vessels in multiple segments in order to take advantage of historically low vessel values.

On aggregate, the Company entered into agreements to acquire 17 vessels, of which 12 are with unaffiliated third parties, with an average age of 2 years for a total cost of approximately $765.5 million, of which $219.2 million has been advanced as of this date.

In connection with the above acquisitions the Company is now engaged in four different shipping segments: drybulk, comprising of 13 Panamax, 5 Kamsarmax and 4 Newcastlemax drybulk carriers; tankers, comprising of 2 Aframax vessels, 1 Suezmax vessel and 1 Very Large Crude Carrier (VLCC); liquefied petroleum gas carriers, comprising of 4 VLGCs; and offshore support, with 2 platform supply and 4 oil spill recovery vessels.

Indicative Fleet Earnings Capacity

On an annual basis, assuming all the vessels we have agreed to acquire have been delivered, that vessels are fully utilized and earn $16,000 per day for Newcastlemaxes, $12,000 per day for Kamsarmaxes, $10,000 per day for Panamaxes, $18,000 per day for Aframaxes, $25,000 per day for Suezmaxes and $30,000 per day for very large crude carriers (“VLCCs”), and the rest of the vessels in the Company’s fleet that are employed under time charters will earn their respective fixed rates, the Company estimates for indicative purposes that its active fleet (i.e. excluding laid up vessels in our offshore support fleet) will generate EBITDA(1) of approximately $77.0 million.

(1) EBITDA represents earnings before interest, taxes, depreciation and amortization.

Dividend Policy

Earlier this year, the Company has initiated a new dividend policy. Under this policy, DryShips expects to pay a regular fixed quarterly dividend of $2.5 million to the holders of its common stock. In addition, at its discretion, the Board may decide to pay additional amounts as dividend each quarter depending on market conditions and the Company’s financial performance, over and above the fixed amount.

As of today two consecutive dividends have been declared.

Any future dividends will be dependent upon the Company’s earnings, financial condition, cash requirements and availability, fleet renewal and expansion, restrictions in the Company’s loan agreements, the provisions of Marshall Islands law affecting the payment of distributions to shareholders and other factors.

George Economou, Chairman and Chief Executive Officer of the Company, commented:

“DryShips has come a long way since last year when we were fighting for the Company’s survival. Since then we have cleaned up the Company’s balance sheet and almost doubled our fleet by acquiring modern quality vessels. With this rapid expansion phase behind us we look forward to taking delivery of the vessels we have acquired in the last few months at historically low asset values and starting to generate revenue that will improve our bottom line and demonstrate the earnings capacity of our fleet over the next few quarters.”

Fleet List
The table below describes the Company’s fleet as of May 10, 2017, including vessels the Company has agreed to acquire:

Year Gross rate Redelivery
Built DWT Per day Earliest Latest
Drybulk fleet
Panamax:
Raraka 2012 76,037 Spot N/A N/A
Rapallo 2009 75,123 Spot N/A N/A
Catalina 2005 74,432 Spot N/A N/A
Majorca 2005 74,477 Spot N/A N/A
Ligari 2004 75,583 Spot N/A N/A
Mendocino 2002 76,623 Spot N/A N/A
Bargara 2002 74,832 Spot N/A N/A
Ecola 2001 73,931 Spot N/A N/A
Capitola 2001 74,816 Spot N/A N/A
Levanto 2001 73,925 Spot N/A N/A
Maganari 2001 75,941 Spot N/A N/A
Marbella 2000 72,561 Spot N/A N/A
Redondo 2000 74,716 Spot N/A N/A
Newcastlemax:
Marini 2014 205,855 $19,400 Feb.-18 May-18
Newcastlemax (1) 2015 205,855 $9,350 Dec.-17 Apr.-18
Newcastlemax (1) 2013 206,000 T/C Index Linked Aug.-18 Dec.-18
Newcastlemax (1) 2013 205,123 Spot N/A N/A
Kamsarmax:
Nasaka 2014 81,918 Spot N/A N/A
Kamsarmax – under construction (1) 2017 81,300 Spot N/A N/A
Kamsarmax (1) 2014 81,129 Spot N/A N/A
Kamsarmax (1) 2014 81,129 Spot N/A N/A
Kamsarmax (1) 2014 82,129 Spot N/A N/A
(1) Expected to be delivered during the second quarter of 2017.
Tanker fleet:
Very Large Crude Carriers:
Very Large Crude Carrier (1) 2011 320,105 Spot N/A N/A
Suezmax:
Suezmax Tanker – under construction (1) 2017 158,000 Base rate plus profit share Mar.-22 May-25
Aframax:
Balla 2017 113,644 Spot N/A N/A
Aframax Tanker (1) 2012 115,666 Spot N/A N/A
(1) Expected to be delivered during the second quarter of 2017.
Gas Carrier fleet
Very Large Gas Carriers: CBM
Very Large Gas Carrier – under construction (1) 2017 78,700 $30,000 Jun.-22 Jun.-25
Very Large Gas Carrier – under construction (2) 2017 78,700 $30,000 Sep.-22 Sep.-25
Very Large Gas Carrier – under construction (3) 2017 78,700 $28,833 Oct.-27 Oct.-27
Very Large Gas Carrier – under construction (4) 2017 78,700 $28,833 Dec.-27 Dec.-27
(1) Expected to be delivered during June 2017.
(2) Expected to be delivered during September 2017.
(3) Expected to be delivered during October 2017.
(4) Expected to be delivered during December 2017.
Offshore Supply fleet
Platform Supply Vessels:
Crescendo 2012 1,457 Laid up N/A N/A
Colorado 2012 1,430 Laid up N/A N/A
Oil Spill Recovery Vessels:
Indigo 2013 1,393 Laid up N/A N/A
Vega Jaanca 2012 1,393 Idle N/A N/A
Vega Emtoli 2012 1,363 T/C May-17 May-17
Jubilee 2012 1,317 Laid up N/A N/A
Drybulk Carrier Segment Summary Operating Data (unaudited)
(Dollars in thousands, except average daily results)
Drybulk Three Months Ended March 31,
2016 2017
Average number of vessels(1) 23.0 13.0
Total voyage days for vessels(2) 2,093 1,170
Total calendar days for vessels(3) 2,093 1,170
Fleet utilization(4) 100.0% 100.0%
Time charter equivalent(5) $2,978 $5,617
Vessel operating expenses (daily)(6) $4,817 $5,146
(1) Average number of vessels is the number of vessels that constituted the Company’s fleet for the relevant period, as measured by the sum of the number of days each vessel was a part of the Company’s fleet during the period divided by the number of calendar days in that period.
(2) Total voyage days for fleet are the total days the vessels were in the Company’s possession for the relevant period net of dry-docking and laid-up days.
(3) Calendar days are the total number of days the vessels were in the Company’s possession for the relevant period including dry-docking days and laid-up days.
(4) Fleet utilization is the percentage of time that the Company’s vessels were available for revenue generating voyage days, and is determined by dividing voyage days by fleet calendar days for the relevant period.
(5) Time charter equivalent, or TCE, is a measure of the average daily revenue performance of a vessel on a per voyage basis. The Company’s method of calculating TCE is consistent with industry standards and is determined by dividing voyage revenues (net of voyage expenses) by voyage days for the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage and are paid by the charterer under a time charter contract, as well as commissions. TCE revenues, a non-U.S. GAAP measure, provides additional meaningful information in conjunction with revenues from the Company’s vessels, the most directly comparable U.S. GAAP measure, because it assists the Company’s management in making decisions regarding the deployment and use of its vessels and in evaluating their financial performance. TCE is also a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance despite changes in the mix of charter types (i.e., spot charters, time charters and bareboat charters) under which the vessels may be employed between the periods. Please see below for a reconciliation of TCE rates to voyage revenues.
(6) Daily vessel operating expenses, which includes crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs is calculated by dividing vessel operating expenses by fleet calendar days net of laid-up days for the relevant time period.
(In thousands of U.S. dollars, except for TCE rate, which is expressed in Dollars, and voyage days)
Drybulk Three Months Ended March 31,
2016 2017
Voyage revenues $ 8,451 $ 8,488
Voyage expenses (2,219 ) (1,916 )
Time charter equivalent revenues $ 6,232 $ 6,572
Total voyage days for fleet 2,093 1,170
Time charter equivalent TCE $ 2,978 $ 5,617
DryShips Inc.
Financial Statements
Unaudited Condensed Consolidated Statements of Operations
(Expressed in Thousands of U.S. Dollars except for share and per share data) Three Months Ended March 31,
2016 2017
REVENUES:
Voyage revenues $ 17,021 $ 11,808
17,021 11,808
EXPENSES:
Voyage expenses 2,921 2,234
Vessel operating expenses 14,788 7,969
Depreciation and amortization 862 812
Vessels impairment, loss on sales and other 45,945
General and administrative expenses 9,890 8,713
Other, net (1,517 ) 173
Operating loss (55,868 ) (8,093 )
OTHER INCOME / (EXPENSES):
Interest and finance costs, net of interest income (3,295 ) (2,439 )
Other, net (1,938 ) (175 )
Total other expenses, net (5,233 ) (2,614 )
Net loss (61,101 ) (10,707 )
Equity in losses of Ocean Rig (45,714 )
Net loss attributable to DryShips Inc. $ (106,815 ) $ (10,707 )
Net loss attributable to DryShips Inc. common stockholders (107,152 ) (10,707 )
Loss per common share, basic and diluted (1) (2) $ (7,708.22 ) $ (0.69 )
Weighted average number of shares, basic and diluted (1) (2) 13,901 15,550,085
(1) Share and per share data give effect to a cumulative 1-for-48,000 reverse stock split between March 11, 2016 and April 11, 2017.
(2) Share and per share data does not give effect to the 1-for-7 reverse stock split, approved on May 2, 2017, which will become effective on or about May 11, 2017.
DryShips Inc.
Unaudited Condensed Consolidated Balance Sheets
(Expressed in Thousands of U.S. Dollars) December 31, 2016 March 31, 2017
ASSETS
Cash, cash equivalents, including restricted cash (current and non-current) $ 76,774 $ 397,834
Other current assets 21,406 28,715
Advances for vessels under construction and acquisitions 66,818
Vessels, net 95,550 94,738
Total assets 193,730 588,105
LIABILITIES AND STOCKHOLDERS’ EQUITY
Total debt 133,428 176,997
Total other liabilities 10,528 7,625
Total stockholders’ equity 49,774 403,483
Total liabilities and stockholders’ equity $ 193,730 $ 588,105
Dryships Inc.
Unaudited Condensed Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. Dollars)
Three Months Ended March 31,
2016 2017
Net Cash Used in Operating Activities $ (5,484 ) $ (19,146 )
Cash Flows Provided by/(Used in) Investing Activities:
Sale of fixed assets (12,260 )
Advances for vessels under construction and acquisitions (36,118 )
Decrease in restricted cash 9,286
Net Cash Used in Investing Activities (2,974 ) (36,118 )
Cash Flows Provided by/(Used in) Financing Activities :
Proceeds from long-term debt 28,000
Principal payments of short and long-term debt (19,518 ) (667 )
Net proceeds from common stock issuance 379,491
Conversion of preferred shares (24 )
Dividends paid (2,500 )
Net Cash Provided by Financing Activities 8,458 376,324
Net increase in cash and cash equivalents 321,060
Cash and cash equivalents at beginning of the period 76,414
Cash and cash equivalents at end of the period $ $ 397,474

Adjusted EBITDA Reconciliation
Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization, vessel and investment impairments and certain other non-cash items as described below and gains or losses on interest rate swaps. Adjusted EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operations, as determined by United States generally accepted accounting principles, or U.S. GAAP, and the Company’s calculation of adjusted EBITDA may not be comparable to that reported by other companies. Adjusted EBITDA is included herein because it is a basis upon which the Company measures its operations. Adjusted EBITDA is also used by the Company’s lenders as a credit metric and the Company believes that it presents useful information to investors regarding a company’s ability to service and/or incur indebtedness.

The following table reconciles net loss to Adjusted EBITDA:

(Dollars in thousands) Three Months Ended
March 31, 2016
Three Months Ended
March 31, 2017
Net loss attributable to DryShips Inc. $ (106,815 ) $ (10,707 )
Add: Net interest expense 3,295 2,439
Add: Depreciation and amortization 862 812
Add: Impairment losses on sales and other 45,945
Add: Income taxes 9
Add: Loss on interest rate swaps 557
Add: Equity in losses of affiliate 45,714
Adjusted EBITDA $ (10,442 ) $ (7,447 )

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