Performance Shipping Inc. — FY2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018. Although the request references 2018 Q4, this annual filing does not provide a clear standalone fourth-quarter income statement or cash-flow presentation. Figures below are for the full year unless noted. Amounts are in U.S. dollars.
Business context
The company owns and operates containerships, generally chartered to liner companies under time charters. Its fleet contracted from 11 vessels at year-end 2017 to four at year-end 2018, following vessel sales. The year-end fleet comprised two Panamax and two Post-Panamax vessels, with 21,816 TEU capacity and a 13.0-year weighted average age.
Financial and operating performance
| Metric | FY2018 | FY2017 |
|---|---|---|
| Time-charter revenue | $25.6 million | $23.8 million |
| Operating loss | $41.4 million | $24.6 million |
| Net income (loss) | $(52.9) million | $3.8 million |
| Operating cash flow | $(0.3) million | $(12.7) million |
| Investing cash flow | $93.2 million | $6.7 million |
| Financing cash flow | $(88.8) million | $(4.9) million |
| Cash and cash equivalents at year-end | $10.5 million | $6.4 million |
| Total current assets / current liabilities | $12.0 million / $2.9 million | $28.0 million / $101.2 million |
| Debt outstanding at year-end | $0 | $96.9 million, net of financing costs |
| Vessel operating expenses | $15.5 million | $22.7 million |
| Impairment losses | $20.7 million | $8.4 million |
| Loss (gain) on vessel sales | $16.7 million loss | $0.9 million gain |
Fleet utilization rose to 95.3% from 75.9%, and the average time-charter-equivalent (TCE) rate increased to $10,639 per available day from $5,320. Daily vessel operating expenses rose to $6,698 from $5,441. The filing does not provide a clear standalone operating-margin figure.
Material changes versus FY2017
- Revenue increased 8%, mainly reflecting improved charter rates, partly offset by the smaller fleet after vessel disposals.
- The company recorded a $52.9 million net loss, versus $3.8 million net income. FY2018 included $20.7 million in vessel impairments and $16.7 million in losses on the sale of seven vessels. FY2017 benefited from a $42.2 million gain on settlement of the RBS loan.
- Cash from operations improved substantially but remained slightly negative. Vessel-sale proceeds of $92.9 million and $17.4 million of net preferred-equity proceeds helped fund debt repayment; all debt was repaid during 2018.
- Vessel operating expenses and depreciation declined as the fleet shrank, although management noted higher average repair, maintenance and crew costs.
- Common shares outstanding increased to 14,463,231 at year-end 2018 from 4,051,266 a year earlier, reflecting preferred-share conversions and other equity issuance.
Outlook, risks and unusual items
- Management expected to fund operations over the following 12 months through cash on hand, operating cash flow, bank debt, equity offerings or a combination. It stated there was no substantial doubt about the company’s ability to continue as a going concern.
- All four operating vessels were on time charters, but their minimum remaining durations were short; the filing says existing charters were scheduled to expire in the first half of 2019 assuming earliest redelivery dates. At December 31, 2018, estimated minimum net contractual charter revenue through year-end 2019 was $5.7 million.
- Key exposures include volatile containership charter rates and vessel values, customer concentration, counterparty credit risk, rising operating and regulatory costs, and potential ballast-water and emissions-compliance spending. Three charterers accounted for 80% of FY2018 revenue.
- The board had suspended common dividends effective with the quarter ended June 30, 2016; the filing gives no reinstatement guidance. In January 2019, it authorized repurchases of up to $6.0 million of common shares through December 21, 2019.
- After year-end, the company issued 5,747,786 restricted shares as a $5.0 million special award to executives and non-executive directors. By March 15, 2019, 3,720 Series B-2 preferred shares had converted into 5,348,947 common shares, and reported common shares outstanding had reached 25,559,964.
- Nasdaq notified the company in January 2019 that its share price had been below the $1.00 minimum bid for 30 consecutive business days. The stated deadline to regain compliance was July 9, 2019.
- A purported securities class action, consolidated in 2018, remained pending; the company said it considered the claims without merit and intended to defend them.
Most important facts for investors to verify
- Current charter status, redelivery dates, replacement employment and expected revenue after the short-dated charters expire.
- Cash generation from the four-vessel fleet, liquidity needs and the company’s ability to obtain financing without debt at year-end 2018.
- Vessel market values and future impairment or sale losses, particularly given the 2018 impairment charges and vessel-sale losses.
- Actual share count and dilution following preferred conversions and the 5.75 million-share award; also confirm the terms and use of the $6.0 million repurchase authorization.
- Nasdaq bid-price compliance and the status and potential financial exposure of the securities litigation.