Achieves Strong Operating Results, Grows Operating Fleet and Further Strengthens Financial Position

HONG KONG, July 30, 2017 Seaspan Corporation ("Seaspan") (NYSE: SSW) announced today its financial results for the three and six months ended June 30, 2017.

Key Financial Metrics

• Total revenues of $204.6 million for the second quarter and $405.9 million for the six months.
• Earnings per diluted share of $0.11 for the second quarter and $0.33 for the six months.
• Normalized earnings per diluted share⁽¹⁾ of $0.17 for the second quarter and $0.32 for the six months.
• Cash available for distribution to common shareholders⁽¹⁾ of $95.0 million for the second quarter and $155.4 million for the six months.
• Adjusted EBITDA⁽¹⁾ of $153.9 million for the second quarter and $273.2 million for the six months.

 

 

Highlights

• Accepted delivery of one 14000 TEU vessel on long-term charter with Yang Ming Marine Transport Corp. ("Yang Ming Marine").
   
• Achieved reductions of 13.8% and 12.3% in ship operating expense per ownership day during the three and six months ended June 30, 2017, respectively, compared to the same periods in 2016.
   
• Achieved vessel utilization of 98.2% and 95.0% for the three and six months ended June 30, 2017, respectively.
   
• Raised gross proceeds of $33.9 million through common equity sales in "at-the-market" offerings during the three months ended June 30, 2017 and $58.6 million for the six months ended June 30, 2017.
   
• Currently eight unencumbered vessels in the Company's operating fleet: 2 x 3500 TEUs, 2 x 4500 TEUs and 4 x 4250 TEUs.
   
• In July 2017, declared a quarterly dividend of $0.125 per common share for the second quarter of 2017.

 

Gerry Wang, Chief Executive Officer and Co-Founder of Seaspan, commented, "During the second quarter, Seaspan grew its operating fleet with the delivery of the YM Wind, a 14000 TEU containership on a long-term fixed rate time charter. We also achieved strong operating results, highlighted by our ongoing success in reducing costs and our high utilization rate for the quarter."

Mr. Wang added, "We took important steps to further strengthen our financial position during the quarter, including entering into a sale-leaseback transaction to fund the YM Wind delivery and renewing our unsecured revolving loan facility. Both of these transactions demonstrate the company's strong access to capital. We remain committed to creating long-term shareholder value and are pleased to enter the second half of the year with a strong cash position and the financial flexibility to capitalize on future opportunities." 

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

 

Second Quarter Developments

Vessel Delivery and Financing

In May 2017, Seaspan accepted delivery of one 14000 TEU vessel, the YM Wind. The vessel was constructed at CSBC Corporation, Taiwan using our fuel-efficient SAVER design and commenced a 10-year fixed rate time charter with Yang Ming Marine in June 2017.

In May 2017, Seaspan entered into a sale-leaseback transaction with special purpose companies ("SPCs") for the YM Wind for gross proceeds of $144.0 million. Under the lease, Seaspan sold the vessel to the SPCs and leased the vessel back for 12 years, with an option to purchase the vessel at the 9.5 year anniversary for a pre-determined fair value purchase price. Seaspan used approximately $53.2 million of the proceeds to repay a credit facility.

Revolving Credit Facility

In April 2017, Seaspan completed the renewal of its 364-day unsecured, revolving loan facility for a total commitment of up to $120.0 million. The facility includes features providing for an increase in commitments by up to $30.0 million, enabling a total facility size of up to $150.0 million.

At-the-Market Offering of Class A Common Shares

During the first quarter of 2017, Seaspan entered into an equity distribution agreement under which it may, from time to time, issue Class A common shares in at-the-market ("ATM") offerings for up to an aggregate of $75.0 million. During the three and six months ended June 30, 2017, Seaspan issued a total of 5,650,000 and 9,350,000 Class A common shares under the ATM offerings for gross proceeds of approximately $33.9 million and $58.6 million, respectively.

Subsequent Events

Dividends

In July 2017, Seaspan declared quarterly cash dividends on its common and preferred shares.

Results for the Three and Six Months Ended June 30, 2017

At the beginning of 2017, Seaspan had 87 vessels in operation. Seaspan acquired one 4250 TEU vessel and accepted delivery of one 14000 TEU vessel during the six months ended June 30, 2017, bringing its operating fleet to a total of 89 vessels as at June 30, 2017. Revenue is determined primarily by the number of operating days, and ship operating expense is determined primarily by the number of ownership days.

 

The following table summarizes Seaspan's vessel utilization by quarter and for the six months ended June 30, 2017 and 2016:

 

The following table summarizes Seaspan's consolidated financial results for the quarter and six months ended June 30, 2017 and 2016:

 

Revenue

Revenue decreased by 8.8% to $204.6 million for the three months ended June 30, 2017, compared to the same period in 2016, primarily due to lower average charter rates for vessels that were on short-term charters. The decrease was partially offset by the delivery of newbuilding vessels in 2016 and 2017 and the addition of two leased-in vessels in 2016.

Revenue decreased by 7.7% to $405.9 million for the six months ended June 30, 2017, compared to the same period in 2016, primarily due to lower average charter rates for vessels that were on short-term charters and an increase in unscheduled off-hire, primarily relating to vessels being off-charter. For the six months ended June 30, 2017, 200 of the off-charter days related to three 10000 TEU vessels that were previously on long-term charters and commenced short-term charters with Hapag-Lloyd AG commencing in March and April 2017. The remaining off-charter days primarily related to panamax vessels, including four secondhand vessels purchased in December 2016. The decrease was partially offset by the delivery of newbuilding vessels in 2016 and 2017 and the addition of two leased-in vessels in 2016.

The increase in operating days and the related financial impact thereof for the three and six months ended June 30, 2017, relative to the same periods in 2016, are attributable to the following:

 

Vessel utilization remained stable for the three months ended June 30, 2017, compared to the same period in 2016. Vessel utilization decreased for the six months ended June 30, 2017, compared to the same period in 2016, primarily due to an increase in off-charter days as previously described.

During the six months ended June 30, 2017, Seaspan completed dry-dockings for two 4250 TEU vessels, which were completed between their time charters.

Ship Operating Expense

Ship operating expense decreased by 9.0% to $44.8 million and by 6.6% to $90.4 million for the three and six months ended June 30, 2017, respectively, compared to the same periods in 2016, primarily due to cost savings initiatives. These decreases were achieved while the ownership days increased by 5.6% and 6.5% for the three and six months ended June 30, 2017. As a result, ship operating expense per ownership day declined by 13.8% and 12.3% for the three and six months ended June 30, 2017, compared to the same periods in 2016.

Depreciation and Amortization Expense

Depreciation and amortization expense decreased by 8.7% to $49.8 million and by 12.0% to $99.7 million for the three and six months ended June 30, 2017, respectively, compared to the same periods in 2016, primarily due to lower depreciation on 16 vessels that were impaired as of December 31, 2016.

General and Administrative Expense

General and administrative expense decreased by 17.4% to $7.5 million and 11.2% to $15.0 million for the three and six months ended June 30, 2017, respectively, compared to the same periods in 2016, primarily due to higher professional fees and other expenses incurred in 2016, partially offset by an increase in non-cash stock-based compensation expense related to grants of restricted and performance stock units in 2016.

Operating Lease Expense

Operating lease expense increased to $28.1 million and $54.7 million for the three and six months ended June 30, 2017, respectively, from $20.7 million and $35.5 million for the same periods in 2016. The increase was primarily due to the delivery of two vessels in 2016 and one vessel in 2017 that were financed through sale-leaseback transactions and two operating leases entered into in 2016. For the six months ended June 30, 2017, the increase was also due to the delivery of one 10000 TEU vessel financed through a sale-leaseback transaction in the first quarter of 2016.

Interest Expense and Amortization of Deferred Financing Fees

The following table summarizes Seaspan's borrowings:

 

Interest expense and amortization of deferred financing fees decreased by $1.8 million and $3.5 million to $28.3 million and $56.7 million for the three and six months ended June 30, 2017, respectively, compared to the same periods in 2016, primarily due to repayments made on existing operating borrowings in 2016 and 2017, partially offset by an increase in LIBOR.

Change in Fair Value of Financial Instruments

The change in fair value of financial instruments resulted in losses of $13.6 million and $17.0 million for the three and six months ended June 30, 2017, respectively, which losses  were primarily due to the impact of swap settlements, partially offset by an increase in the forward LIBOR curve.

About Seaspan 

Seaspan provides many of the world's major shipping lines with creative outsourcing alternatives to vessel ownership by offering long-term leases on large, modern containerships combined with industry-leading ship management services. Seaspan's managed fleet consists of 114 containerships representing a total capacity of over 915,000 TEU, including nine newbuilding containerships on order scheduled for delivery to Seaspan and third parties by the end of 2018. Seaspan's current operating fleet of 89 vessels has an average age of approximately six years and an average remaining lease period of approximately four 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, 2017 on August 1, 2017 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 for anyone unable to participate in the live call. To access the replay, call 1-855-859-2056 or 1-404-537-3406 and enter the replay passcode 62493328. The recording will be available from August 1, 2017 at 8:30 a.m. PT / 11:30 a.m. ET through 8:30 p.m. PT / 11:30 p.m. ET on August 15, 2017. 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, 2017 AND 2016
(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, refinancing expenses, share-based compensation, change in fair value of financial instruments, bareboat charter adjustment, gain on sale, expenses related to customer bankruptcy, termination fee, amortization of deferred gain, dry-dock reserve adjustment, cash dividends paid on preferred shares, interest expense at the hedged rate and certain other items that Seaspan believes are not representative of its operating performance.

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, 2017 AND 2016
(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, refinancing expenses, expenses related to customer bankruptcy, change in fair value of financial instruments, termination fee, interest expense at the hedged rate, write-off of vessel equipment and certain other items Seaspan believes affect the comparability of operating results. Normalized net earnings 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, 2017 AND 2016
(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, refinancing expenses, 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 and certain other items that Seaspan believes are not representative of its operating performance.

Adjusted EBITDA 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.

 

Notes to Non-GAAP Financial Measures

⁽¹⁾ Change in fair value of financial instruments includes realized and unrealized losses (gains) on Seaspan's interest rate swaps, unrealized losses (gains) on Seaspan's foreign currency forward contracts and unrealized losses (gains) on interest rate swaps included in equity income on investment.

⁽²⁾ In the second half of 2011, Seaspan entered into agreements to bareboat charter four 4800 TEU vessels to MSC Mediterranean Shipping Company S.A. ("MSC") for a five-year term, beginning from vessel delivery dates that occurred in 2011. Upon delivery of the vessels to MSC, the transactions were accounted for as sales-type leases. The vessels were disposed of and a gross investment in lease was recorded, which was amortized to income through revenue. The bareboat charter adjustment in the applicable non-GAAP measures is included to reverse the GAAP accounting treatment and reflect the transaction as if the vessels had not been disposed of. Therefore, the bareboat charter fees are added back and the interest income from leasing, which is recorded in revenue, is deducted resulting in a net bareboat charter adjustment. During the fourth quarter of 2016, Seaspan sold these vessels to MSC pursuant to the agreements entered into in 2011.

⁽³⁾ The gain on sale relates to the proceeds received in excess of vessel cost upon the sale and leaseback transaction of one 14000 TEU vessel during the three and six months ended June 30, 2017. Under this transaction, Seaspan sold the vessel to special purpose companies and is leasing the vessel back. For accounting purposes, the gain is deferred and amortized as a reduction of operating lease expense over the term of the lease.

⁽⁴⁾ Expenses related to customer bankruptcy primarily relates to costs and expenses related to the Hanjin bankruptcy in 2016. As of September 1, 2016, after Hanjin declared bankruptcy, no revenue was recognized on the Hanjin charters. 

⁽⁵⁾ The termination fee relates to a non-cash payment in connection with the termination of the financial services agreement with SFSL, an entity controlled by former Director Graham Porter.

⁽⁶⁾ As of June 30, 2017, 11 vessels have been sold and leased back by Seaspan. For GAAP accounting purposes, the gain on sales was deferred and is being amortized as a reduction of operating lease expense over the term of the lease.

⁽⁷⁾ Interest expense at the hedged rate is calculated as the interest incurred on operating debt at the fixed rate on the related interest rate swaps plus the applicable margin on the related variable rate credit facilities and leases, on an accrual basis. Interest expense on fixed rate borrowings is calculated using the effective interest rate.

⁽⁸⁾ Commencing in May 2015, Seaspan installed upgrades on certain of its vessels to enhance fuel efficiency. As a result, Seaspan incurred non-cash write-offs related to the original vessel equipment of $2.2 million and $9.0 million for the three and six months ended June 30, 2016, respectively. These write-offs are included in depreciation and amortization expense. The costs of the vessel upgrades are recoverable from the charterer.

⁽⁹⁾  Seaspan's shares of common stock issuable upon conversion of its convertible Series F preferred shares are not included in the computation of diluted earnings per share because their effect is anti-dilutive for the period.

⁽¹⁰⁾  The decrease in normalized earnings per share for the three and six months ended June 30, 2017 is detailed below:

 

STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This release contains certain forward-looking statements (as such term is defined in Section 21E of the Securities Exchange Act of 1934, as amended), which reflect management's current views with respect to certain future events and performance, including, in particular, statements regarding: future operating or financial results; industry fundamentals, including estimated supply and demand for containerships; ship operating expense; vessel dry-docking schedules; Seaspan's access to capital and financial strength and flexibility; and Seaspan's ability to capitalize on future opportunities. Although these statements are based upon assumptions Seaspan believes to be reasonable, they are subject to risks and uncertainties. These risks and uncertainties include, but are not limited to: the availability to Seaspan of containership acquisition or construction opportunities; the availability and cost to Seaspan of financing, including to refinance existing debt and to pursue growth opportunities; the number of off-hire days; dry-docking requirements; general market conditions and shipping market trends, including chartering rates, scrapping rates and newbuild orders; increased operating expenses; Seaspan's future cash flows and its ability to make payments; the time that it may take to construct new ships; Seaspan's continued ability to enter into primarily long-term, fixed-rate time charters with customers; changes in governmental rules and regulations or actions taken by regulatory authorities; the financial condition of shipyards, charterers, customers, lenders, refund guarantors and other counterparties and their ability to perform their obligations under their agreements with Seaspan; the potential for newbuilding delivery delays; the potential for early termination of long-term contracts; changes in accounting rules or treatment; working capital needs; conditions in the public capital markets and the price of Seaspan's shares; Seaspan's ability to maintain its reputation as a leading containership owner and operator; and other factors detailed from time-to-time in Seaspan's periodic reports and filings with the Securities and Exchange Commission, including Seaspan's Annual Report on Form 20-F for the year ended December 31, 2016.  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.

For Investor Relations Inquiries:
Mr. David Spivak
Chief Financial Officer
Seaspan Corporation
Tel. 604-638-2580

Mr. Michael Sieffert
Director, Corporate Finance
Seaspan Corporation
Tel. 778-328-6490

For Media Inquiries:
Mr. Leon Berman
The IGB Group
Tel. 212-477-8438

SOURCE Seaspan Corporation