Seaspan Reports Financial Results for the Three and Six Months Ended June 30, 2018

Seaspan Achieves Strong Operating Results with the Successful Integration of GCI, Growth of Operating Fleet, and Increases Equity Capital through Fairfax’s Continued Investment and Support

HONG KONG, Aug. 1, 2018 /CNW/ – Seaspan Corporation ("Seaspan") (NYSE: SSW) announced today its financial results for the three and six months ended June 30, 2018.

Highlights for the Quarter:

• Earnings per diluted share of $0.34 for the second quarter and $0.71 for the six months
• Normalized earnings per diluted share⁽¹⁾ of $0.23 for the second quarter and $0.36 for the six months
• Secured an additional $500 million equity investment commitment from affiliates of Fairfax Financial Holdings Limited ("Fairfax"), which increases their total investment to $1.0 billion
• Accepted delivery of four 10000 TEU vessels, each on a long-term charter with CMA CGM S.A. ("CMA CGM")
• Achieved vessel utilization of 98.6% for the second quarter and 97.8% for the six months ended June 30, 2018

Bing Chen, President and Chief Executive Officer of Seaspan, commented, "I am pleased with our strong operating results for the second quarter. As expected, the acquisition and seamless integration of GCI contributed significantly to our growth. In addition to the vessels acquired through GCI in the first quarter, we grew our operating fleet with the delivery of four 10000 TEU containerships on long-term fixed rate charters with CMA CGM, and achieved a utilization rate of 98.6% for the quarter. We remain optimistic about improving industry dynamics for containerships."

Mr. Chen continued, "The additional investment by Fairfax announced in the second quarter increases its cumulative investment to $1.0 billion. The $500.0 million Fairfax equity investment is transformative to Seaspan as it increases our equity capital base and improves our access to capital."

David Sokol, Chairman of Seaspan Corporation, commented, "Our Board of Directors believes that the management team is doing an excellent job executing on its strategy to deliver long-term shareholder value. We are appreciative of Fairfax’s continued confidence in Seaspan. Today, Fairfax Financial Holdings owns 22 percent of Seaspan’s Class A common shares outstanding and will own an additional 38.5 million shares upon the exercise of warrants in January 2019. Seaspan appreciates having such thoughtful, long-term investors like Fairfax and the Washington Family, whose perspectives and insights are well-aligned with the Company’s longer term strategy."

Subsequent Events

Fairfax Investments

On July 16, 2018, in accordance with the May 2018 definitive agreement, Fairfax exercised 38.5 million warrants at an exercise price of $6.50 per share resulting in Seaspan receiving $250.0 million in proceeds. Also in accordance with the May 2018 definitive agreement, Seaspan issued Fairfax warrants to acquire 25.0 million Class A common shares at an exercise price of $8.05 per share and the terms of the debentures issued in February 2018 and to be issued in January 2019 were amended to allow Fairfax to call for an early redemption for some or all of the debentures on each anniversary date of issuance.  As the right to put the debentures is solely within the control of Fairfax, the outstanding debentures will be reclassified from long-term liabilities to current liabilities as of July 16, 2018.  Upon funding of the additional debentures and exercise of the additional warrants upon closing in January 2019, these debentures will also be classified as a current liability.

Series F Preferred Shares Redemption

On July 23, 2018, Seaspan redeemed all of its outstanding 10.5% Series F preferred shares for $140.0 million plus $3.4 million of accrued dividends.

Summary of Key Financial Results (in thousands of US dollars):

Results for the Three and Six Months Ended June 30, 2018

Financial Results

The following table summarizes Seaspan’s consolidated financial results for the three and six months ended June 30, 2018 and 2017:

Ownership Days, Operating Days and Vessel Utilization

Ownership days are the number of days a vessel is owned and available for charter.  Operating days are the number of days a vessel is available to the charterer for use. 

The primary driver of ownership days are the increases or decreases in number of vessels we own, while the drivers of operating days are ownership days and the number of days the vessels are off-hire.  Ownership and operating days for the three and six months ended June 30, 2018 and 2017 were as follows:

Ownership days increased by 1,509 days primarily due to the addition of 16 vessels acquired through the GCI acquisition, which contributed 1,456 days.  The remainder of the increase was due to 2018 vessel deliveries and acquisitions and partially offset by vessel disposals.

Vessel utilization represents the number of days a vessel is used (operating days) as a percentage of the total days a vessel is available for charter (ownership days). 

The following table summarizes Seaspan’s vessel utilization by quarter and for the six months ended June 30, 2018 and 2017:

Vessel utilization increased for the three and six months ended June 30, 2018, compared to the same periods in 2017, primarily due to higher utilization of vessels acquired from Greater China Intermodal Investments LLC ("GCI") and the 2018 deliveries and acquisitions. The increase in utilization for the six months ended June 30, 2018 was also due to a decrease in off-charter days. During the six months ended June 30, 2018, Seaspan completed dry-dockings for five 2500 TEU vessels, one 3500 TEU vessel and one 4250 TEU vessel, one of which occurred while the vessel was off-charter.

Revenue

Revenue increased by 37.7% to $281.7 million and by 24.8% to $506.4 million for the three and six months ended June 30, 2018, respectively, compared to the same periods in 2017. The increases in revenue were primarily due to the additional operating days from the vessel deliveries and acquisition of vessels from the GCI transaction.

The increase in operating days and the related financial impact thereof for the three and six months ended June 30, 2018, relative to the same periods in 2017, is attributable to the following:

Ship Operating Expense

Ship operating expense increased by 31.1% to $58.8 million and by 19.8% to $108.3 million for the three and six months ended June 30, 2018, respectively, compared to the same periods in 2017. The increases were primarily due to an increase in ownership days from the increase in the number of vessels in Seaspan’s fleet, higher bulk purchasing of vessel stores and spare parts, and an increase in planned maintenance required for certain vessels less than 8500 TEU in size.

Depreciation and Amortization Expense

Depreciation and amortization expense increased by 24.7% to $62.1 million and by 16.3% to $116.0 million for the three and six months ended June 30, 2018, respectively, compared to the same periods in 2017. The increases were primarily due to an increase in ownership days from the increase in the number of vessels in Seaspan’s fleet.

General and Administrative Expense

General and administrative expense increased by 21.2%, to $9.1 million and by 9.2% to $16.3 million for the three and six months ended June 30, 2018, respectively, compared to the same periods in 2017.  The increases were primarily due to transition payments to the former chief financial officer, and additional general and administrative expense related to the acquisition of GCI, partially offset by a decrease in stock-based compensation related to the former chief executive officer.

Operating Lease Expense

Operating lease expense increased by 14.9% to $32.3 million and by 16.2% to $63.5 million for the three and six months ended June 30, 2018, respectively, compared to the same periods in 2017. The increases were primarily due to an increase in LIBOR and the delivery of one vessel in 2017 that was financed through a sale-leaseback transaction.

Interest Expense and Amortization of Deferred Financing Fees

The following table summarizes Seaspan’s borrowings:

Interest expense and amortization of deferred financing fees increased by $29.0 million to $57.3 million and by $39.5 million to $96.2 million for the three and six months ended June 30, 2018, respectively, compared to the same periods in 2017. The increases were primarily due to the debt assumed as part of the acquisition of GCI, an increase in operating debt for delivered vessels, the issuance of the debentures to Fairfax and an increase in LIBOR.

Change in Fair Value of Financial Instruments

The change in fair value of financial instruments resulted in a gain of $5.9 million and $25.2 million for the three and six months ended June 30, 2018, respectively. The gains for these periods were primarily due to the impact of swap settlements and increase in the forward LIBOR curve.

Working Capital

At June 30, 2018, we had a working capital deficiency of $497.0 million which includes $337.9 million of senior unsecured notes maturing in April 2019. The working capital deficiency may increase in future periods due to the classification of the Fairfax debentures to current liabilities as described in the subsequent events section.  In order to alleviate this deficiency, we will rely, in part, upon the continued financial support of Fairfax, which includes not exercising the debenture put right and the successful closing of the agreements described above under "Fairfax Investments".  We also expect to further address this deficiency through cash generated from operations and additional sources of funds in the capital markets to the extent available.

About Seaspan

Seaspan is the leading independent charter owner of containerships with industry leading ship management services. We charter our vessels primarily pursuant to long-term, fixed-rate, time charters from the world’s largest container shipping liners. Seaspan’s operating fleet consists of 112 containerships with a total capacity of more than 900,000 TEU, an average age of approximately six years and an average remaining lease period of approximately five years, on a TEU weighted basis.

Seaspan has the following securities listed on The New York Stock Exchange:

Conference Call and Webcast

Seaspan will host a conference call and webcast presentation for investors and analysts to discuss its results for the three and six months ended June 30, 2018 on August 2, 2018 at 5:30 a.m. PT / 8:30 a.m. ET. Participants should call 1-877-246-9875 (US/Canada) or 1-707-287-9353 (International) and request the Seaspan call. A telephonic replay will be available from August 2, 2018 at 8:30 a.m. PT / 11:30 a.m. ET through 8:30 p.m. PT / 11:30 p.m. ET on August 16, 2018. To access the replay, call 1-855-859-2056 or 1-404-537-3406 and enter the replay passcode 2573108. The conference call will also be broadcast live over the Internet and will include a slide presentation. To access the live webcast of the conference call, go to www.seaspancorp.com and click on "News & Events" then "Events & Presentations" for the link. The webcast will be archived on the site for one year.

 

 

 

 

SEASPAN CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017
(IN THOUSANDS OF US DOLLARS)

Description of Non-GAAP Financial Measures

A. Cash Available for Distribution to Common Shareholders

Cash available for distribution to common shareholders is defined as net earnings adjusted for depreciation and amortization, interest expense and amortization of deferred financing fees, share-based compensation, change in fair value of financial instruments, bareboat charter adjustment, expenses related to customer bankruptcy, acquisition-related gain on contract settlement, amortization of deferred gain, dry-dock reserve adjustment, gain on sale, termination fee, cash dividends paid on preferred shares, interest expense at the hedged rate, and certain other items that Seaspan believes affect the comparability of operating results.

Cash available for distribution to common shareholders is a non-GAAP measure used to assist in evaluating Seaspan’s ability to make quarterly cash dividends before reserves for replacement capital expenditures. Cash available for distribution to common shareholders is not defined by GAAP and should not be considered as an alternative to net earnings or any other indicator of Seaspan’s performance required to be reported by GAAP. In addition, this measure may not be comparable to similar measures presented by other companies.

 

SEASPAN CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017
(IN THOUSANDS OF US DOLLARS, EXCEPT PER SHARE DATA)

B. Normalized Net Earnings and Normalized Earnings per Share

Normalized net earnings is defined as net earnings adjusted for interest expense (excluding amortization of deferred financing fees), expenses related to customer bankruptcy, change in fair value of financial instruments, acquisition-related gain on contract settlement, termination fee, interest expense at the hedged rate, and certain other items Seaspan believes affect the comparability of operating results.

Normalized net earnings is a non-GAAP measure that Seaspan believes is a useful measure because it excludes those items that Seaspan believes are not representative of its operating performance.  Normalized net earnings and normalized earnings per share are not defined by GAAP and should not be considered as an alternative to net earnings, earnings per share or any other indicator of Seaspan’s performance required to be reported by GAAP. In addition, this measure may not be comparable to similar measures presented by other companies.

SEASPAN CORPORATION
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2018 AND 2017
(IN THOUSANDS OF US DOLLARS)

C. Adjusted EBITDA 

Adjusted EBITDA is defined as net earnings adjusted for interest expense and amortization of deferred financing fees, interest income, undrawn credit facility fees, depreciation and amortization, share-based compensation, gain on sale, expenses related to customer bankruptcy, termination fee, amortization of deferred gain, bareboat charter adjustment, change in fair value of financial instruments, acquisition-related gain on contract settlement, and certain other items that Seaspan believes affect the comparability of operating results.

Adjusted EBITDA is a non-GAAP measure that Seaspan believes provides useful information to investors in assessing Seaspan’s results of operations. Seaspan believes that this measure is useful in assessing performance and highlighting trends on an overall basis. Seaspan also believes that this measure can be useful in comparing its results with those of other companies, even though other companies may not calculate this measure in the same way as Seaspan. The GAAP measure most directly comparable to Adjusted EBITDA is net earnings. Adjusted EBITDA is not defined by GAAP and should not be considered as an alternative to net earnings or any other indicator of Seaspan’s performance required to be reported by GAAP.

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This release contains forward-looking statements (as such term is defined in Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act) concerning Seaspan’s operations, cash flows, and financial position, including, in particular, the likelihood of its success in developing and expanding its business. Statements that are predictive in nature, that depend upon or refer to future events or conditions, or that include words such as "continue," "expects," "anticipates," "intends," "plans," "believes," "estimates," "projects," "forecasts," "will," "may," "potential," "should" and similar expressions are forward‑looking statements. These forward-looking statements represent Seaspan’s estimates and assumptions only as of the date of this release and are not intended to give any assurance as to future results. As a result, you are cautioned not to rely on any forward-looking statements. Forward-looking statements appear in a number of places in this release. Although these statements are based upon assumptions Seaspan believes to be reasonable based upon available information, they are subject to risks and uncertainties. These risks and uncertainties include, but are not limited to:

• future growth prospects and ability to expand Seaspan’s business;
• Seaspan’s expectations as to impairments of its vessels, including the timing and amount of currently anticipated impairments;
• the future valuation of Seaspan’s vessels and goodwill;
• potential acquisitions, vessel financing arrangements and other investments, and Seaspan’s expected risks and benefits from such transactions;
• future time charters and vessel deliveries, including future long-term charters for certain existing vessels;
• estimated future capital expenditures needed to preserve the operating capacity of Seaspan’s fleet including, its capital base, and comply with regulatory standards, its expectations regarding future dry-docking and operating expenses, including ship operating expense and general and administrative expenses;
• Seaspan’s expectations about the availability of vessels to purchase, the time that it may take to construct new vessels, the delivery dates of new vessels, the commencement of service of new vessels under long-term time charter contracts and the useful lives of its vessels;
• availability of crew, number of off-hire days and dry-docking requirements;
• general market conditions and shipping market trends, including charter rates, increased technological innovation in competing vessels and other factors affecting supply and demand;
• Seaspan’s financial condition and liquidity, including its ability to borrow and repay funds under its credit facilities, to refinance its existing facilities and to obtain additional financing in the future to fund capital expenditures, acquisitions and other general corporate activities;
• Seaspan’s continued ability to meet its current liabilities as they become due;
• Seaspan’s continued ability to maintain, enter into or renew primarily long-term, fixed-rate time charters with its existing customers or new customers;
• the potential for early termination of long-term contracts and Seaspan’s potential inability to enter into, renew or replace long-term contracts;
• the introduction of new accounting rules for leasing and exposure to currency exchange rates and interest rate fluctuations;
• conditions inherent in the operation of ocean-going vessels, including acts of piracy;
• acts of terrorism or government requisition Seaspan’s containership during periods of war or emergency;
• adequacy of Seaspan’s insurance to cover losses that result from the inherent operational risks of the shipping industry;
• lack of diversity in Seaspan’s operations and in the type of vessels in its fleet;
• conditions in the public equity market and the price of Seaspan’s shares;
• Seaspan’s ability to leverage to its advantage its relationships and reputation in the containership industry;
• compliance with and changes in governmental rules and regulations or actions taken by regulatory authorities, and the effect of governmental regulations on Seaspan’s business;
• the financial condition of Seaspan’s customers, lenders, and other counterparties and their ability to perform their obligations under their agreements with us;
• Seaspan’s continued ability to meet specified restrictive covenants and other conditions in its financing and lease arrangements, its notes and its preferred shares;
• any economic downturn in the global financial markets and export trade and increase in trade protectionism and potential negative effects of any recurrence of such disruptions on Seaspan’s customers’ ability to charter Seaspan’s vessels and pay for Seaspan’s services;
• the recent departures of Seaspan’s former chief executive officer and former chief financial officer, the upcoming departure of Seaspan’s current general counsel and chief operating officer and the ability to retain key employees in the future;
• some of Seaspan’s directors and investors may have separate interests which may conflict with those of its shareholders and they may be difficult to replace given the anti-takeover provisions in Seaspan’s organizational documents;
• taxation of Seaspan’s earnings and of distributions to its shareholders;
• Seaspan’s exemption from tax on U.S. source international transportation income;
• the ability to bring claims in China and Marshall Island, where the legal systems are not well-developed;
• potential liability from future litigation; and
• other factors detailed from time to time in Seaspan’s periodic reports.

Forward-looking statements in this release are estimates and assumptions reflecting the judgment of senior management and involve known and unknown risks and uncertainties. These forward-looking statements are based upon a number of assumptions and estimates that are inherently subject to significant uncertainties and contingencies, many of which are beyond Seaspan’s control. Actual results may differ materially from those expressed or implied by such forward-looking statements. Accordingly, these forward-looking statements should be considered in light of various important factors listed above and including, but not limited to, those set forth in "Item 3. Key Information—D. Risk Factors" in Seaspan’s Annual Report for the year ended December 31, 2017 on Form 20-F filed on March 6, 2018 and in the "Risk Factors" in Reports on Form 6-K filed on April 13, 2018 and to be filed in connection with our second quarter results.

Seaspan does not intend to revise any forward-looking statements in order to reflect any change in Seaspan’s expectations or events or circumstances that may subsequently arise. Seaspan expressly disclaims any obligation to update or revise any of these forward-looking statements, whether because of future events, new information, a change in Seaspan’s views or expectations, or otherwise. You should carefully review and consider the various disclosures included in this Annual Report and in Seaspan’s other filings made with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect Seaspan’s business, prospects and results of operations.

For Investor Relations Inquiries:
Mr. Anthony Gerstein
Senior Director, Investor Relations
Seaspan Corporation
Tel. 646-659-4050
Email: [email protected]

SOURCE Seaspan Corporation