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Edited Transcript of GSL earnings conference call or presentation 1-Aug-19 2:30pm GMT

Q2 2019 Global Ship Lease Inc Earnings Call

MAJURO Aug 7, 2019 (Thomson StreetEvents) -- Edited Transcript of Global Ship Lease Inc earnings conference call or presentation Thursday, August 1, 2019 at 2:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Anastasios Psaropoulos

Global Ship Lease, Inc. - CFO & Treasurer

* Georgios Youroukos

Global Ship Lease, Inc. - Executive Chairman

* Ian J. Webber

Global Ship Lease, Inc. - CEO

* Thomas A. Lister

Global Ship Lease, Inc. - Chief Commercial Officer

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Conference Call Participants

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* Howard Blum

* J. Mintzmyer

Value Investor's Edge - Lead Researcher

* Konstantin Chinarov

Aptior Capital - Credit Product Analyst

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Presentation

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Operator [1]

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Good day, ladies and gentlemen, and welcome to the Global Ship Lease Second Quarter 2019 Earnings Conference Call. (Operators Instructions) As a reminder, this conference call is being recorded.

I would now like to introduce your host for today's conference, Mr. Ian Webber, Chief Executive Officer of Global Ship Lease. Sir, you may begin.

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Ian J. Webber, Global Ship Lease, Inc. - CEO [2]

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Thank you, very much. Hello, everybody. Welcome to our second quarter 2019 earnings conference call. As normal, the slides that accompany today's presentation are available on our website, and in those Slides 1 and 2 remind you that the call today may include forward-looking statements that are based on current expectations and assumptions and are by their nature inherently uncertain and outside of our control. Actual results may differ materially from these forward-looking statements due to many factors, including those described in the safe harbor section of the slide presentation.

We also draw your attention to the Risk Factors section of our most recent annual report on Form 20-F, which is for 2018, and was filed with the SEC on March 29 of this year. You can obtain this and all our other reports on our -- via our website or via the SEC's.

All our statements are qualified by these and other disclosures in our reports filed with the SEC, and we don't undertake any duty to update forward-looking statements.

For a reconciliations of the non-GAAP financial measures to which we will refer in this call to the most directly comparable measures calculated and presented in accordance with GAAP, you should refer to the earnings release that we issued earlier today.

I'm joined today by our Executive Chairman, George Youroukos; our Chief Financial Officer, Tassos Psaropoulos; and our Chief Commercial Officer, Tom Lister. George will provide opening remarks about GSL and our strategy in the first half. And then Tassos, Tom and I will take you through the quarterly results, our financials and the current market environment. After our prepared remarks, which will be concluded by George, we'll be delighted to take your questions.

Turning to Slide 3, I'll now pass the call over to George.

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Georgios Youroukos, Global Ship Lease, Inc. - Executive Chairman [3]

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Thank you, Ian. It is my pleasure to speak with you all today. While my colleagues will take you through the details of the market and the multiple ways that we have sought to unlock the full value of GSL, I would first like to put into perspective the extent of the company's transformation so far in 2019. As we have been trying for some time, there's a long-standing and clear disconnect between the fundamental demand for midsize and smaller containerships on hand and then almost total lack of newbuilding orders for such vessels from the other. As this tension has increased with continued demand growth, including carriers replacing larger, mainly owned tonnage, taken out for service to fit scrubbers ahead of IMO 2020, and a resurgence of scrapping activity, again ahead of IMO 2020.

We have seen a dramatic improvement in the charter rates across the midsized vessel classes. This positive impact was initially seen for high specification post-Panamax ships, which have seen market charter rates more than double since Q4 2018 and is now filtering out across all of the vessel classes that make up our fleet. In this environment, we have been able to make extensive use of our superior commercial management platform to secure long-term profitable employment for our fleet.

In summary, in the first half of 2019, we have secured 15 new charters, of which 9 have multiyear durations, 35 years aggregate additional contracted charter cover, $129 million of additional adjusted EBITDA over the life of those charters. A net expansion of nearly $100 million to $823 million of contracted revenue between December 31, 2018, and June 30, 2019.

Despite the passage of 6 months, which has eaten into the December 31 numbers, and an over 15% increase in our average charter cover over the same period to 2.9 years. We're simultaneously realizing cost savings, having decreased our daily OpEx per ship from $6,242 per day in first half of 2018 to $6,042 per day in first half of 2019. As a result of the lower OpEx cost per day of the Poseidon fleet and the transition of the legacy GSL fleet to its new ship manager. At the same time, by growing our contract cover and delevering, we have substantially improved our forward visibility, credit profile and strategic position as we seek to refinance our 2020 maturities of favorable terms well in advance.

Looking forward, we believe that there are exciting opportunities for us to utilize our improved financial standing and commercial capabilities to pursue accretive growth opportunities. Whether as a one-off ship acquisitions and block purchases along the lines of the recent 3 8,000 TEU ships purchased and chartered to Maersk Line or corporate acquisitions via M&A transactions, like the transformation and combination of GSL and Poseidon. We have established GSL as a proven platform for accretive growth.

We will be prudent and highly selective in pursuing midsized and smaller ships that meet our high standards for deployability, operations and financial returns, including immediate value accretion. Our continues engagement across the market leads us to believe that such opportunities exist for an acquirer such as us with a financial operation means to complete such transactions.

Finally, as many of you will experience directly in recent months, we are taking actions to increase investor awareness of GSL by participating conferences and non-deal roadshows on an ongoing global basis. We firmly hold the belief that our story is underappreciated, and we're working very hard every day to not only strengthen that story but to make sure that the investment community is aware of the opportunity that GSL presents.

With that, I will turn the call back to Ian. Thank you.

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Ian J. Webber, Global Ship Lease, Inc. - CEO [4]

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Thanks very much, George. If you could all turn to Slide 4, I'll quickly run through the highlights for the quarter and for the first half of the year.

Operating revenues for the quarter was $63.1 million, generating net income of $8.8 million and adjusted EBITDA of $38.8 million. Operating revenue and hence adjusted EBITDA were a little down on the first quarter, mainly due to a number of vessels being off hire for important upgrading work to substantially increase effective reefer capacity on 5 vessels. Where it makes sense, given the upgrade work, we've also brought forward with the approval of class, the standard regulatory drydocking work to be efficient. We will return to these upgrades later.

As George mentioned, we've taken advantage of the strong market for high-specification midsized vessels to lock in upside through multiyear charters, bringing contracted revenue to $823 million and TEU weighted average forward charter cover to 2.9 years per ship.

To briefly recap on our chartering activities since the beginning of the year across our fleet, all vessels, sizes and ages, we've agreed a 3-year charter for the 2015-built 9,100 TEU Al Khor with Hapag-Lloyd. This is expected to generate approximately $28 million of adjusted EBITDA.

We've agreed a 30- to 38-month charter for the 2,000-built 5,900 TEU Tasman with Maersk Line, expected to generate approximately $5.3 million of adjusted EBITDA and an additional $4.4 million of adjusted EBITDA if a 12-month extension is exercised by the charter. We've agreed 21- to 24-month charter for the 2,000-built, 5,936 TEU Dimitris Y and the Ian H both with Zim. Each charter is expected to generate approximately $4.4 million of adjusted EBITDA.

We've agreed 5-year charters for the 2004 and 2005-built, now 8,700 TEU OOCL Qingdao and the GSL Tianjin with MSC. Each Charter is expected to generate approximately $25.6 million of adjusted EBITDA.

We've also agreed short-term charters and extensions for 6 of our smaller ships at prevailing market rates, ensuring full employment while maintaining exposure to the continuing strengthening of the charter market.

A particular note, we've grown. We purchased 3 2004-built 7,849 TEU ships for an aggregate purchase price of $48.5 million secured against 3- and 5-year charters to Maersk Line. These charters are expected to generate an aggregate adjusted EBITDA of $32 million and up to $47 million if the 2 successive 1-year options held by the charter are exercised on each of the ships.

We've financed part of the purchase price, $37 million which was very close to the scrap value of the ship at the time when we struck the deal, thus risk is minimized. We financed $37 million of the purchase price with new bank debt agreed on market terms. Beyond the highly attractive terms of this transaction and the high quality and good condition of the vessels themselves, we were pleased to have been able to capture this unique opportunity to participate in earnings and fleet growth with minimal residual value risk.

Our balance sheet and relationships across the market put us in a position to act quickly to get this transaction agreed and completed and the benefit that we enjoy from having done so is clear.

Beyond buying vessels and rechartering ships, we've also taken several opportunities to invest in our existing ships to improve in their ability to participate in the superior markets available to ships with highly competitive slot costs from low-fuel consumption and high cargo-carrying capacity will return to this, and best-in-class reefer capacity, the ability to carry refrigerated cargo.

Accordingly, we're upgrading the reefer capacity of 6 of our ships. 4 have now been completed, 1 is work in progress and 1 is planned for the fourth quarter. As I mentioned earlier, this is contributed to elevated levels of offhire in the second quarter. Further, as we previously mentioned on previous calls, we're committed to installing scrubbers on 3 ships in exchange for above markets charter terms.

Where it makes sense, and it does all but 2 of these 9 ships, we have or we will be bringing forward the regulatory drydocking and undertaking these upgrading improvements concurrently for no or negligible incremental offhire days. Tassos will provide some more details later on the CapEx associated with these upgrades.

Turning to Slide 5. You can see our fleet of 41 containerships, which range from the small end 2,200 TEU to the upper end, 11,000 TEU. This is what we refer to as midsized and smaller vessel classes. The dark blue bars illustrate the expense of the new chartering activity that we've achieved in the year-to-date, much of which has resulted in multiyear charter coverage at attractive rates.

As you can see at the bottom of the chart, we have already fixed 98% of our fleets' annual adjusted EBITDA for 2019 and 86% for 2020.

In addition to actively managing the commercial and operational aspects of the business, we're taking steps to strengthen our balance sheet. As you know, we've already extended the maturity date for 1 debt facility for mid-2020 into 2021, and we're now working hard on extending our other 2020 maturities to improve flexibility and potentially to lower cost. This reflects our systematic approach to unlocking increased shareholder value and maximizing our ability to benefit from our organizations capabilities, strong balance sheets, high-quality in-demand fleet and supportive market environment currently prevailing.

With that, I'll turn the call over to Tom for an update on the markets.

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Thomas A. Lister, Global Ship Lease, Inc. - Chief Commercial Officer [5]

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Thanks, Ian. As usual, let's start by taking a quick look at the broader backdrop. The tone of the IMF's latest macroeconomic outlook remains cautious with 3.2% global GDP growth forecast for 2019. However, their report also points to the apparent easing or at least nonescalation of tensions between the U.S. and China with global GDP growth forecast to pick up to 3.5% in 2020, while trade growth is also expected to improve from around about 2.5% in 2019 to 3.7% in 2020. Emerging markets and developing economies are expected to continue to be important drivers of growth as they are for the trades served by midsized and smaller containerships, with their aggregate GDP expected to grow by 4.1% this year and 4.7% in 2020. Meantime, despite the negative macro sentiment that has hung over the year-to-date, supportive industry fundamentals for midsized and smaller containerships, particularly for post-Panamax containerships, providing the most competitive slot costs, have caused earnings in the charter market to strengthen significantly throughout the first half of 2019, as George has noted, with that strong positive momentum continuing into the third quarter.

The next few slides provide our usual market analysis with recurring themes summarized at the top of Slide 7. Essentially, these are: one, despite headwinds to sentiment, industry fundamentals are supportive with demand growth expected to strengthen into 2020; two, the containership order book remained extremely modest with 0 ships on order in the size segments most relevant to us; three, short-term negative sentiment is helpful to longer-term industry fundamentals, limiting new orders. Also, scrapping activity is picking up with demolition through first half 2019 already exceeding those in the full year 2018 by a factor of over 1.3x; four, we see the impending industry-wide implementation of IMO 2020 emission control regulation as a positive development for the sector as a whole, with the added benefits that we expect it to be a positive earnings catalyst for containership owners, like us, offering modern fuel-efficient ships to the charter market. Scrubber retrofitting, which takes a vessel out of service for approximately 6 to 8 weeks, is causing the removal of capacity from the market during 2019 and beyond, plus as fuel prices are anticipated to rise materially in 2020, operations are expected to further slow steamships, which will cause a reduction in effective supply; and five, and this is a point we've been focusing on for some time, and it goes to the very heart of the GSL thesis and value proposition. We believe industry dynamics continue to be most attractive for smaller and particularly midsized ships, with GSL's low-slot cost ships well positioned to capitalize on the cascade.

The chart on the lower half of the slide underline the points I just made. On the left, you can see a comparison of demand growth, the dark bars, and supply growth, the pale bars. You can see demand growth exceeding supply growth in 2016 and 2017, causing earnings in the short-term charter market to increase as reflected in the charter rate index, the redline. In 2018, overall supply for the global containership fleet outgrew demand, partly due to new ship deliveries, the majority of which were very large containerships, but also importantly, because scrapping slowed significantly as earnings and asset values firmed. As we move through 2019 and towards 2020, industry fundamentals, and as a result, vessel earnings in the charter market, are firming once again.

The lower right-hand chart shows how the global fleet has evolved since 2007. Most significantly, you can see how the order book-to-fleet ratio, which was north of 60% in 2007 on the back of speculative orders, largely out of the German KG market, had fallen to 12.3% by the end of last year. And by the end of the first half of this year, it had fallen further to 10.9%, a reduction of 5.5x, which is pretty extraordinary. If you drill down, as we will on our later slide, the order book-to-fleet ratio for 2,000 to 10,000 TEU ships, the midsize and smaller vessel segments we're focused on, is only 2.5%, with nothing on order at all, absolutely 0 between 4,000 and 10,000 TEU.

Slide 8 focuses mainly on the demand side fundamentals. The pie chart at top left shows the composition of global containerized trade in 2018. Almost 30% of volumes were carried in the mainlane trades, by which we mean, Asia, Europe, the transpacific and the transatlantic. Much more relevant to us, however, is the fact that in aggregate, a little over 70% of global containerized trade volumes were carried in the non-mainlane, intermediate and intra-regional trades, which tend to be served by midsize and smaller containerships of the sort provided by GSL.

You can see from the chart at top right that globally, demand growth is forecast to accelerate from 2019 into 2020 and is expected to outstrip supply growth, again, in 2020. And from the bottom chart, you can see that the most robust growth is expected to be concentrated in the non-mainlane, intermediate and intra-regional trades.

Turning to Slide 9. This slide looks at fleet composition and vessel deployment patterns. The pie chart at top left shows composition of the global fleet, showing the proportion by number of ships of each size segment. Significantly, 43% of the ships on the water today are 2,000 TEU or smaller. This is relevant in the context of the cascade, which we'll come back to later. The bar chart shows how the global fleet is deployed, dividing containerized trade into 20-or-so groupings, which are arranged along the horizontal axis. Immediately below these, you will see the number of ships operated in each trade grouping. The bars in the chart show the maximum vessel size deployed by trade grouping, the pale blue bars, and the average vessel size, the dark blue. Clearly, the really big ships are key to a handful of trades, driven by a search for unit cost efficiency, facilitated by high volumes, sophisticated port infrastructure and long tradelanes. Asia, Europe is the obvious example served by the largest ships on the water, maximum size north of 22,000 TEU and with an average size around 15,000 TEU.

On the flip side, as demonstrated by the area between the dotted red lines, ships of between 2,000 and 10,000 TEU, in other words, those focused upon by GSL, are core to most other tradelanes. Furthermore, liner companies have observed that trade tensions between U.S. and China have caused their customers to reshape supply chains, with goods previously sourced from China increasingly being manufactured and sourced elsewhere, particularly in Southeast Asia.

We expect this change in trades patterns to increase intra-regional trade and further strengthen demand for midsize and smaller ships over time.

Slides 10 and 11 present the same data in a slightly different way on the basis that a picture tells a thousand words. The Slide 10 shows the deployment of the big ships, those of over 10,000 TEU, during a 30-day period in the first quarter of 2019. As you can see, they're largely concentrated on the arterial east-west trades.

Turning to Slide 11. On the other hand, you can see the deployment of midsized and smaller ships, which are pretty much everywhere. So the previous few slides demonstrate why we believe the demand side of the story for midsized and smaller ships is compelling.

Now let's look at supply. Slide 12 shows that supply-side fundamentals are also very favorable for the segments we're focused on. Top left, you can see that idle fleet capacity, the redline, although subject to the usual seasonal variations, has been trending down since 2016. At its worst, back in 2009, the idle fleet peaked north of 12%. At the end of first of 2019, it was 1.6%.

Scrapping, which is the focus of the chart at top right, helped to reduce idle capacity during 2016 and '17. However, as you can see, strengthening in the market with rising charter market earnings and asset values, meant that scrapping in 2018 was rather limited at around 100,000 TEU. The good news is that despite rising rates and rising asset values, scrapping activity is increasing in 2019, with almost 140,000 TEU scrapped in the first half alone.

Bottom left is a chart showing the order book, which is significantly weighted towards big ships and very low for the midsized and smaller ships. To reiterate, the overall order book-to-fleet ratio at the end of Q2 was 10.9%, which is already down, by the way, from 11.7% at the end of Q1. For vessels between 2,000 and 10,000 TEU, it was 2.5%. And most notably, for the segments ranging from 4,000 TEU to just under 10,000 TEU, in other words, those representing roughly 80% of GSL fleet capacity, there is 0, repeat, 0 new capacity in the pipeline.

Turning to Slide 13, you can see that shipbuilding capacity is contracting. The number of active yards has fallen by over 60% since the peak in 2008, and the number of yards actually taking orders has fallen by more than 90% over that same period. This is a very good news for containership owners, like us, for 2 reasons. The first is that increased pricing discipline from the remaining yards, as you will see from the newbuilding index on the next slide, is placing upward pressure on newbuilding prices and ship replacement values. And secondly, bringing the order book into check, going forward, should significantly reduce volatility. Remember, we're in a highly cyclical industry in which, with the exception of 2009, demand has always grown from one year to the next. So the key to long-term profitability is to get the supply side under control, and that's what we're seeing at the moment.

Slide 14 focuses on charter rates and asset values. Here, you can see how vessel earnings, short-term charter rates and asset values have evolved over the long term, which is the left-hand chart, and since the beginning of the fundamentals-driven recovery a couple of years ago, which is the top right-hand chart. As you can see, short-term charter rates, the redline, were under sustained downward pressure for a number of years until during the first quarter of 2017, they began to recover sharply. As you'd expect, asset values tend to correlate to earnings and to sentiment and also began to firm significantly. This upward trajectory continued through first half 2018 but faltered in the second half of the year as trade war rhetoric ramped up and sentiment turned negative. The usual industry-low season, which tends to run from the fourth quarter through Chinese New Year in Q1, exacerbated this downward trend. However, in the last few months, as you can see clearly from the chart at bottom right, charter rate momentum has turned very strongly positive. This has been driven by post-Panamax vessels of 5,500 TEU and up. So roughly 70% plus of GSL fleet capacity, where charter rates have more than doubled for the larger sizes since the fourth quarter of 2018. With the larger size segments largely sold out, the rate recovery, as George mentioned earlier, is now beginning to lift rates for the smaller sizes too.

We were able to capitalize on this combination of strong fundamentals, overlaid by negative sentiment with our recent purchase of the 3 8,000 TEU ships.

Next couple of slides explain where we think the best value and upside potential lies within our established focus on smaller and midsized ships.

So Slide 15 looks at slot costs. We've covered this before, but we wanted to remind you of this critically important metric, which is the principal driver of the chartering decisions made by our customers, the liner companies. So slot cost is the daily cost to a liner company for the space that each loaded container occupies on a given ship. The equation at top right explains how slot costs are calculated. Daily fuel costs and daily charter hire, divided by the number of loaded containers at an assumed standardized load of 14 metric tons per TEU on the ship. The greater the cargo carrying capacity and fuel efficiency of a ship, the lower the slot cost. And the lower the slot cost, the more attractive the ship to liner companies in the charter market.

Fuel costs are significant part of the calculation. As you can see from the chart at bottom right, at a constant operating speed, daily fuel cost per TEU decreases as ship size increases. If fuel costs climb, as is anticipated with the implementation of IMO 2020, this relationship has an even greater economic impact. What this all means is that, on any given trade, liner companies tend to deploy the largest possible vessel that can be supported by commercial considerations, by which I mean cargo volumes and service frequency and by physical limitations, such as shoreside infrastructure and vessel dimensions. Goes without saying that slot cost economies are only unlocked if a liner operator can fill a ship. So ship size appropriate for one trade may not be a good fit for another.

Slide 16 takes the slot cost concept and translates it into vessel earnings and upside potential, shaping the strategic positioning of GSL. The bar chart looks at slot cost parity by charter rate and ship size. In other words, it shows the implied charter rates for different ship sizes, which would result in the same all-in slot cost to the charterer. We run this analysis using illustrative fuel costs of $400 per metric ton, the dark blue bars, and $600 per metric ton, the pale blue bars.

As a baseline vessel, we've used a theoretical 4,250 TEU Panamax, which sits roughly in the middle of the size segments representing the liquid charter market. Assuming this baseline vessel is deployed at a charter rate of $10,000 a day, which isn't far off the market rate for that vessel back in June, a modern 9,100 TEU vessel could be charted at up to $55,000 per day with fuel of $400 metric tons, and this rises to almost $70,000, 7-0 thousand per day, with fuel at $600 per metric ton, while still delivering slot cost parity for the charterer. At the other end of the scale, the implied charter rate for an 1,100 TEU vessel would need to be negative in order to achieve slot cost parity.

You'll also notice red dots on the charts. These indicate short-term charter rates for each vessel size, prevailing in the market as at the end of June, it's worth mentioning that the rates have since risen during the course of July.

Admittedly, this slot parity exercise is a little bit theoretical as it assumes perfect deployment efficiency and ignores both commercial and physical constraints. Nevertheless, it does imply the following: number one, for larger ships, there is significant upside to prevailing market rates before they converge on implied slot cost parity rates; number two, this upside potential should increase further, if fuel prices climb; and number three, the GSL fleet is well positioned to capitalize on the cascade. Over 85% of our fleet is Panamax or larger, delivering the lowest slot costs in the charter market. And even our smallest vessels of 2,200 TEU are well placed. You'll recall that 43% of ships on the water today, globally, are still 2,000 TEU or smaller.

So to wrap up the section. Number one, despite some headwinds to sentiment, industry fundamentals are supportive, particularly in the non-mainlane trades. Two, the order book pipeline for midsized and smaller ships is extremely limited. Three, scrapping activity is picking up. Four, we see IMO 2020 as likely to be a positive catalyst for containership owners, causing a reduction in effective supply and then uplift to charter market earnings, going forward. Five, industry dynamics continue to be most attractive for midsized and smaller ships, which make up the GSL fleet, for which we see attractive prospects in the cascade. And finally, six, got a clear eye on our customers needs, namely well-specified ships unlocking low slot costs, we're positioning GSL to capitalize on upside opportunities in this space over the short, medium and long term.

With that, Tassos, over to you.

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Anastasios Psaropoulos, Global Ship Lease, Inc. - CFO & Treasurer [6]

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Thank you, Tom. Turning on the financial section now, on Slides 18, 19 and 20. You will find that company's income statement, balance sheet and cash flow for the second quarter of 2019, respectively.

Let me point out to you some key items for this quarter. We generated revenue of $63.1 million and a net income of $8.8 million for the second quarter of 2019, versus $35 million revenue and $4 million net income for the same quarter in 2018. The $28 million increase in revenue is mainly due to the addition of the 19 Poseidon vessels. In this quarter, there were 174 days of scheduled offhire for drydockings, including upgrading works, 18 idle days as vessels transitioned between charterers and 19 days of unscheduled offhire, resulting in an overall utilization of 94%.

As mentioned earlier, this increased offhire in the quarter, primarily, reflects our decision to undertake enhancements of several ships in order to reinforce their best-in-class specifications that command premium rates in the market. In most cases, also bringing forward the regulatory drydockings to be undertaken concurrently for no additional offhire days.

Finally, the average operating expenses per ownership date, including management fees, has reduced by 3.2% from $6,242 in first half 2018 to $6,042 in first half 2019, as a result of the lower OpEx cost per day of the Poseidon fleet, and the transition of the legacy GSL fleet to its new ship manager. For the second quarter itself, daily OpEx is down by 2% to $5,959 from $6,078 in the same quarter in 2018.

Now on Slide 21. As Ian mentioned, we have provided update information of drydockings and upgrade work to assist in modeling CapEx and offhire for the year. In terms of CapEx, we expect a standard, regulatory drydocking, to cost, on average, around $1.1 million per ship and imply around 20 days offhire. The reefer upgrade is approximately $0.9 million per ship, with 40 days offhire and the scrubber installation, approximately $4 million per ship for 45 days offhire. Note that these estimates of offhire days reflect the carrying congestion at CPRs, due to scrubber installation ahead of the implementation of IMO 2020.

Turning now to Slide 22. And in order to assist investors looking at GSL, we have included here an illustrative adjusted EBITDA calculator that can be used to see how different rates scenarios flow through our adjusted EBITDA. And we have also provided certain historical data for illustrative purposes. For example, if we apply the 10 years historical average rates to the open days of 2019, we would generate adjusted EBITDA of $458 million. So to emphasize now that this is not a forecast.

I would now like to turn the call back to George for the closing remarks.

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Georgios Youroukos, Global Ship Lease, Inc. - Executive Chairman [7]

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Thank you, Tassos. Before opening up the call to your questions, allow me to offer a brief summary on Slide 24 of why we believe GSL to be a compelling investment opportunity. First, on even a highly conservative basis and across a number of valuation methodologies, our shares trade at a meaningful discount to our peers and to the broader leasing specialty finance sector. Notably, we trade at a couple of terms discount to our public container leasing peers on an EV-to adjusted-EBITDA basis.

Second, we are focused on midsize and smaller ships with well-established and supportive industry fundamentals, where the order book for the entire 2,000 to 10,000 TEU fleet segment represents only 2.5% of standing capacity. Despite clear and widespread demand for these vessels in trade lanes, demonstrating resilient growth irrespective of ongoing trade tensions.

Third, we are in an industry that offers great forward-looking fundamentals. In the year-to-date, scrapping has already exceeded the levels for the whole of 2018 by over 1.3x. Furthermore, we expect IMO 2020 to result in increased scrapping of older, less fuel-efficient ships and an additional reduction in effective supply of -- as ships slowdown in a higher fuel cost environment.

Fourth, we pursue a balanced strategy that emphasizes substantial downsize protection, illustrated by our $823 million contracted revenue and average remaining charter terms of 2.9 years, while also providing us opportunity to participate in continued market strengthening, as we have done extensively throughout 2019.

Fifth, we have highly-marketable, high-specification vessels concentrated in fleet sizes with minimal order books. More than 80% of our ships are in segments with 0 vessels on order. 1/3 of our fleet is comprised of superior widebeam eco-ships, where more than half have best-in-class reefer capacity, and more than 70% of our capacity is in segments, where charter rates have as much as doubled versus Q4 2018 rates. Our high-specification of fleet offers great upside potential to shareholders, given the favorable industry fundamentals.

Our ships provide extremely competitive slot costs, the most important metric, the most important metric, I must say, for liner companies in selecting ships. And our fleet is in a competitive position to drive the cascade and displace smaller less-efficient vessels with GSL benefiting rather than falling victim to the unforgiving economic logic of the cascade.

Sixth, while we pursue growth, at the same time, we remain highly focused on optimizing our balance sheet and reducing our cost of debt. We're delevering, with debt reduced by $26.5 million during the first half, and we're working to push out our 2020 debt maturities well in advance on when they mature.

Seventh, we have engaged experience and supportive cornerstone shareholders with aligned interest, and our corporate governance is fully transparent.

Eight, finally, GSL represents a proven platform for growth via both standard vessel acquisitions and broader corporate M&A transactions. As exemplified by both the recent and blocked vessel acquisition, and the Poseidon transaction late last year. We are focused on creating long-term shareholder value, and we will remain strictly focused on pursuing acquisition opportunities that meet our high standards, are immediately accretive, and will result in increased value for our shareholders.

As one last point, before opening for questions, I would like to draw your attention to Slide 25, where we have tried to illustrate and quantify the extraordinary extent of the progress we've made in translating GSL's potential into tangible value. Tangible is the word. Specifically, since the end of October 2018, when the combination of GSL and Poseidon was announced, we have purchased 3 ships and added 25 new charters, 67 years of additional charter cover, and more than $330 million of implied contracted adjusted EBITDA.

We are delivering on our promise by securing the charters, locking in upside, protecting the downside, and delivering immediately accretive growth to our focus segments. While we have come a very long way in a short time, we maintain laser-focused on unlocking the full value of GSL for the benefit of all shareholders.

With that, I would like to open the call to your questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from Howard Blum with UBS Financial Services.

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Howard Blum, [2]

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Nice report. With the increased activity in installing scrubbers and pushing forward drydocking, should we be anticipating lower earnings in the next couple of quarters because of the unusual CapEx and drydocking?

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Georgios Youroukos, Global Ship Lease, Inc. - Executive Chairman [3]

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Well, I would answer to that, that probably, on the next quarter, we will have a bit more of this pain of the scheduled drydockings. But after that, we will be all set, as you can see from the earnings report where we have tabled when all of our drydockings are due, and which ships, and so on and so forth.

But that's something that will take us for the next 5 years without any expenditure on these specific ships.

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Operator [4]

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And our next question comes from J. Mintzmyer with Value Investor's Edge.

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J. Mintzmyer, Value Investor's Edge - Lead Researcher [5]

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It's been really impressive to watch the transition of this company over the past few years. I followed you guys for 6, 7 years, and the balance sheets were in a tight position. It was a tough market. And transformative acquisition or merger last November was very impressive. So good job on that.

I enjoyed the presentation. I did want to turn real quick to Slide 29 and look at some of your debt stuff. I know you mentioned, kind of in passing, that you're focusing on those 2020 maturities first, right? That's your #1 focus. Is it reasonable or realistic to think that those can be refinanced in the next quarter? Or do you think this might be more of an early 2020 event?

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Georgios Youroukos, Global Ship Lease, Inc. - Executive Chairman [6]

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I'll let Tassos full answer to that, together with Ian. (inaudible)

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Ian J. Webber, Global Ship Lease, Inc. - CEO [7]

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As I said, J -- and thank you for your comments. We've enjoyed the ride and look forward to continuing to deliver value to all investors. We have pushed out one small facility as $80 million facility maturity into 2021, and we're focused on the remaining 2020 maturities. We're making good progress. We'll obviously provide definitive updates when a deal is done. But we're reasonably confident of having something achieved during the remaining course of 2019.

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J. Mintzmyer, Value Investor's Edge - Lead Researcher [8]

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Yes. Fantastic, Ian. The reason I'm kind of asking that question, is I'm leading into kind of the Big Kahuna, which is those first priority 2022 notes. You got $340 million outstanding. It's almost 10% interest. With interest rates falling back down, we got LIBOR at about 2.25% right now. So a major -- credit facility would probably be around the equivalent of 5% to 6% versus that 10% there in the $340 million. So the savings there would be astronomical if you could refinance that. And it seems like your first priority, if I've heard you correctly, is to hit those 2020 maturities, and then to focus on that $340 million priority note. Do you think that priority note is something that you could handle within the next 6 months? I know there's a call -- a window coming up here in November.

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Ian J. Webber, Global Ship Lease, Inc. - CEO [9]

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Yes. You're right. We are focused on the nearer-term maturities, the 2020 maturities. That gives us some -- if we can push those out by 2 or 3 years, then that gives us much more of a runway. You are also correct that the bond isn't callable until November this year, and it's final maturity date isn't until November 2022. So we've got a couple of years in hand. But your observation about the cost of this bond, which is put in place in old GSL, not new GSL, is very high. And if we can refinance it to 3 points lower, then that's $10 million of interest saved a year, which is material to our company.

And it is absolutely a strategic imperative of ours to refinance that bond in the most efficient manner possible as soon as we can. Now it's very difficult to speculate to when that will be and how we will refinance. But it is towards the top of our list of things to do.

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Operator [10]

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(Operator Instructions) Our next question comes from Konstantin Chinarov with Aptior Capital.

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Konstantin Chinarov, Aptior Capital - Credit Product Analyst [11]

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I guess my question is about this transaction you've done sort of acquiring 3 vessels. Could you please confirm, basically, this sort of charter-adjusted LTV for that transaction? And also kind of remind us what was the cost of financing and the maturity of the loan that you attracted?

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Georgios Youroukos, Global Ship Lease, Inc. - Executive Chairman [12]

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Tom, would you like to refer to that?

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Thomas A. Lister, Global Ship Lease, Inc. - Chief Commercial Officer [13]

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Sure. Sure. Konstantin, unfortunately, we have to -- we haven't put out the charter-adjusted value of those vessels. However, I can give you an overview of the other metrics. The purchase price was $48.5 million, the debt that was put in place was $37 million. And I think we've put out the details of the pricing on that debt, which is L-plus 390 basis points. And clearly under the note -- sorry, just to wrap it out, clearly, under the notes, we are precluded from putting on more than 70% LTV on the charter adjusted value of the vessels. So you can infer that the charter-adjusted value of the vessels is north of that.

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Konstantin Chinarov, Aptior Capital - Credit Product Analyst [14]

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Right. And could you please remind us what's the latest sort of charter-adjusted value of GSL as a whole?

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Thomas A. Lister, Global Ship Lease, Inc. - Chief Commercial Officer [15]

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I'm afraid we haven't put out charter-adjusted value since December 31, 2018, Konstantin, and I would have to go back to the materials on that to double check that number. But that's the latest number we've put out.

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Konstantin Chinarov, Aptior Capital - Credit Product Analyst [16]

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Right. But it sounds like, this transaction, at least, kind of -- on the charter-free basis, looks like kind of 75% LTV transaction. And if we take sort of charter adjustments, maybe it's kind of 70%. So ballpark, it's the same level as GSL as a whole. And kind of echoing the previous comments, it feels like you managed to attract capital at LIBOR-plus 390 in this case, which is, call it, 6.5% all-in cost for 5-year maturity and sort of 2022 bond has got sort of 2.5 years duration or something. And you pay sort of almost 10%. So it feels like, the market is offering much tighter terms at the moment versus what you're paying. So yes, echoing these sort of previous comments, I guess, it might make sense to consider refinancing.

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Thomas A. Lister, Global Ship Lease, Inc. - Chief Commercial Officer [17]

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Sure. Absolutely. Sure. Absolutely. And I think -- just to add one more thing, Konstantin. I think now that we have significant charter cover. Obviously LTV is one thing to consider. But I think almost more interesting is the relationship between enterprise value and EBITDA. And as George mentioned, we're trading at, at least, a couple of turns of EBITDA discount to our peers within the group. And the acquisition of 3 -- of these 3 vessels, if you back in to the economics, delivers roughly 5.5x purchase-price-to-EBITDA multiple, which is more or less where we're trading today. So it's also supportive and potentially accretive to where we're trading.

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Ian J. Webber, Global Ship Lease, Inc. - CEO [18]

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So what we've been doing over the last 6 months, we've been at -- we've been adding substantial amounts of charter cover at decent rates to improve forward visibility on cash flows. That facilitates refinancing generally. So we're putting ourselves in a good position to be able to continue to strengthen the balance sheet.

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Operator [19]

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(Operator Instructions) Our next question is a follow-up from J. Mintzmyer with Value Investor's Edge.

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J. Mintzmyer, Value Investor's Edge - Lead Researcher [20]

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So yes, we have some questions about the debt and then kind of the next lead on is as you mentioned, you're about 2 turns enterprise value to EBITDA lower than some of your peers. One of the big differentiators is the dividend, right? You haven't been able to have a dividend at Global Ship Lease now for I think more than 3 years, and for good reason. But now that the -- you kind of turned the corner, you've got that new charter cover, you're looking at refinancing, my understanding is that as soon as January, per your covenants, you can begin starting dividends.

First of all, is that correct? And then second of all, as part of that, if your valuation remains this far disconnected, has there been any thought or consideration to considering our share repurchase program? Or maybe even a tender offering?

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Georgios Youroukos, Global Ship Lease, Inc. - Executive Chairman [21]

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Let me answer first to your first question, which is whether you're right. Yes, you're right. From January 2020, we are allowed to offer a dividend. Now obviously, for us to offer a dividend, we have to be sure that we can sustain offering a dividend. So we understand that the shareholders would like that, and we have that in mind. But we need to change a few things before we can get there.

As to the repurchasing of shares, we believe that one of the reasons that the stock has not gone up to where it should, it's the free float of the company. So by repurchasing shares, we will shrink even further the free float, and so hurt the stock. So that's why we have not this in our schedule or in our program.

Although, we would love to buy stock, either on a personal or a company level, we don't intend to do that as that is going to hurt the liquidity of the company and reduce their free float, and vis-à-vis, the value. If Ian, you wanted to say something, please do.

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Ian J. Webber, Global Ship Lease, Inc. - CEO [22]

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Just a couple of add-ons. J, currently, we are unable to repurchase stock, even if we thought it was the right thing to do because it's prohibited under the indenture. It's treated the same way as a dividend. It's a return of capital to shareholders, and we can't do that until next year.

And just to clarify, unless -- we can pay a dividend from 2020 based on 50% of 2019's consolidated net income. So we have to wait until we've produced audited financial statements for 2019, so sometime late in the first quarter, would realistically be the earliest possible opportunity to pay a dividend, subject to, of course, the caveats that George has already made.

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J. Mintzmyer, Value Investor's Edge - Lead Researcher [23]

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Yes. That makes sense. I understand there's a bit of a lag there on the covenant kick-in versus the audited reports. So yes, I understand that. Yes, it's a tough situation, right, with that small float, and talking about repurchase it or not. Mathematically, it makes excellent sense. I do understand you have a smaller free float there with all the insider holdings in the company. Have you seen any sort of possibilities for sort of a consolidations, similar to what you've already done with Poseidon, where you swap a fleet to, say, German KG ships in exchange for equity? And then maybe enhance your floats somehow that way?

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Georgios Youroukos, Global Ship Lease, Inc. - Executive Chairman [24]

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There are plenty of such opportunities out there. And we are constantly in discussions and evaluations. But as our fleet is quite unique, I would say, in the context that we have, we have to find the right match which would be ships of similar characteristics and that of similar leverage.

And if that would be the case, we would very seriously look at such an acquisition vis-à-vis ships or sales. But I think for this to happen also our stock has to grow closer to the NAV value to be realistic at such a possible transaction, I would say.

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J. Mintzmyer, Value Investor's Edge - Lead Researcher [25]

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Yes. That makes sense. It is kind of a handicap at the moment. I calculate, you're at more than a 50% discount. And I'm sure you can have your own numbers there as well. But more than a 50% discount to charter-adjusted values.

But anyways, we've been long to the company since May and very happy. And there's kind of a 1, 2, 3 punch coming: you're going to refinance the 2020 debt; you're going to tackle that 2022 term bond; and then you're going to raise the dividend at some point. So excellent work, gentlemen.

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Operator [26]

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And I'm not showing any further questions at this time. I would now like to turn the call back over to Ian Webber for any closing remarks.

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Ian J. Webber, Global Ship Lease, Inc. - CEO [27]

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Thank you, everybody, thanks for listening to us, and thank you for your questions. We look forward to providing a further update on GSL after the third quarter, thank you very much.

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Georgios Youroukos, Global Ship Lease, Inc. - Executive Chairman [28]

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Thank you.

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Operator [29]

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Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program, and you may all disconnect. Everyone, have a wonderful day.