Business Context and Reporting Period
Himalaya Shipping Ltd. filed Form 6-K on May 23, 2024, containing unaudited U.S. GAAP financial statements for the three months ended March 31, 2024, compared with the same period in 2023.
The company owns and operates Newcastlemax dry bulk vessels of approximately 210,000 dwt equipped with dual-fuel LNG technology, fuel-saving devices and scrubbers. As of March 31, 2024, nine vessels were operating and three additional vessels were under construction. Mount Denali was delivered in April 2024, leaving two vessels expected to be delivered by June 2024.
Financial Results and Key Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Total operating revenue | $23.6 million | $1.4 million | +$22.1 million |
| Operating income | $11.4 million | $0.3 million | +$11.2 million |
| Net income | $2.5 million | $(0.02) million | +$2.5 million |
| Adjusted EBITDA | $16.8 million | $0.6 million | +$16.2 million |
| Cash flow from operations | $11.2 million | $2.6 million | +$8.6 million |
| Cash and cash equivalents at period end | $25.7 million | $1.0 million | +$24.7 million |
Gross average daily TCE increased to $30,600 from $28,200, while fleet operating days increased to 798 from 53 as the operating fleet expanded from two to nine vessels. Operating margin was approximately 48%, and net margin was approximately 11%, based on reported revenue.
Vessel operating expenses were $4.9 million, or approximately $6,200 per operating day, compared with $0.3 million, or $4,800 per day, in the prior-year period. General and administrative expenses increased to $1.5 million, primarily because of additional costs associated with being a U.S.-listed company.
Net financial expense increased to $8.9 million from $0.3 million, mainly due to higher debt balances following vessel deliveries. Net interest expense was $9.1 million, compared with $0.3 million in Q1 2023.
Balance Sheet, Debt and Liquidity
- Total assets were $748.6 million and shareholders’ equity was $155.1 million at March 31, 2024.
- Gross principal debt was $598.0 million, or $583.3 million net of deferred financing charges, compared with $453.6 million gross at December 31, 2023.
- Debt due in the remaining nine months of 2024 was $17.8 million; a further $6.6 million is payable in the first quarter of 2025.
- The company reported compliance with all financing covenants at March 31, 2024.
- Cash and cash equivalents were $25.7 million, including approximately $3.0 million required to be maintained in certain vessel-owning subsidiaries.
- The company had $10.0 million available under its Drew revolving credit facility, with drawdowns permitted through December 31, 2024 and facility maturity on December 31, 2025.
- Remaining shipbuilding commitments were $155.7 million, of which approximately $147.6 million was committed to be funded through sale and leaseback arrangements.
Cash Flow and Material Changes
Operating cash flow improved substantially as more vessels entered service. Investing cash outflow was $153.8 million, primarily for final installments on Mount Bandeira, Mount Hua and Mount Elbrus. Financing cash inflow was $142.8 million, including $147.8 million of sale and leaseback debt proceeds, partially offset by debt repayments, financing costs and dividends.
The principal year-over-year change was the transition from a developing fleet to nine operating vessels. This drove the increase in revenue, operating income and adjusted EBITDA, but also increased depreciation, interest expense, lease-related obligations and capital requirements.
General and administrative expense increased by $0.9 million, including higher directors’ and officers’ insurance, director and employee costs, legal fees and management fees. The company reported no income tax expense for either comparative period.
Outlook, Dividends, Risks and Unusual Items
Management expects the remaining newbuildings to be delivered by June 2024 and believes the company has sufficient resources to meet obligations for the 12 months from issuance of the interim financial statements. This conclusion is based on cash, operating cash generation, available revolving credit and stress testing of forecast cash positions.
Mount Denali was delivered in April 2024, its time charter commenced shortly afterward, and a $49.2 million CCBFL sale and leaseback financing was drawn in connection with the delivery. Dividends of $0.03 per share declared in March were paid in April; a further $0.03 per share was paid in May, and $0.04 per share was declared in May for payment in June.
The company highlights exposure to dry bulk charter rates and vessel values, vessel delivery and financing risks, debt and covenant compliance, refinancing availability, lease obligations, fuel and operating costs, geopolitical and route disruptions, environmental and climate regulation, foreign exchange movements, related-party conflicts and the company’s ability to maintain dividends.
The fleet’s sale and leaseback arrangements are accounted for as financing transactions and are secured by vessels and newbuildings. The arrangements include fixed bareboat payments, purchase options and cash-balance requirements. Drew, the provider of the revolving facility, held 31.5% of the company’s common shares as of March 31, 2024.
Important Facts for Investors to Verify
- Confirm the timing and financing of the two remaining vessel deliveries after Mount Denali, including the approximately $155.7 million of remaining commitments.
- Assess the effect of higher interest expense and total debt of approximately $598.0 million on future earnings, cash flow and dividend capacity.
- Review charter coverage, index-linked exposure and current dry bulk rates because operating cash flow is highly sensitive to charter-market conditions.
- Verify compliance with sale and leaseback covenants, required subsidiary cash balances and the availability of the $10.0 million Drew revolving facility.
- Reconcile the filing’s fleet descriptions: nine vessels were operating and three were under construction at March 31, 2024, while the overview also refers to ten delivered vessels and two remaining vessels after the April delivery.
- Consider that Adjusted EBITDA and gross TCE are non-GAAP measures and may not be comparable with similarly titled measures reported by other companies.