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Maritime News

Paragon Shipping Inc. Reports Second Quarter And Six Months Ended

Paragon Shipping Inc. (NYSE: PRGN) (“Paragon Shipping”, or the “Company”), a global shipping transportation company specializing in drybulk cargoes, announced yesterday its results for the second quarter and six months ended June 30, 2012.Financial Highlights (1) Please see the table at the back of this release for a reconciliation of TCE to Time Charter Revenue, EBITDA and Adjusted EBITDA to Net Income, Adjusted Net Income to Net Income and Adjusted Earnings Per Share to Earnings Per Share, the most directly comparable financial measures calculated and presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”).

Time Charter Coverage Update
Pursuant to its time chartering strategy, the Company mainly employs vessels under fixed rate time charters for periods ranging from one to five years.
Assuming all charter counter parties fully perform under the terms of the charters, all exercisable optional periods under the charter parties are exercised and including our newbuilding vessels, the Company has secured employment for 97%, 69% and 35% of its available days in 2012, 2013 and 2014, respectively.
Management Commentary
Commenting on the results, Michael Bodouroglou, Chairman and Chief Executive Officer of Paragon Shipping, stated, “We are pleased to announce our results for the quarter and six months ended June 30, 2012. For the second quarter of 2012, Paragon reported Adjusted EBITDA of $6.6 million and Adjusted Net Income of $0.5 million, or about $0.01 per share. Regarding our fleet development, the second quarter of 2012 had been very active. As previously announced, our first newbuilding vessels, the M/V Prosperous Seas and the M/V Precious Seas, were successfully delivered to our Company. On average, we operated 10.8 vessels, with our utilization rate being more than 99%.”
Mr. Bodouroglou continued, “Since the beginning of 2012, the drybulk market has been fluctuating at depressed levels and we expect the downturn to continue also during 2013, as the overcapacity problem remains. Nonetheless, Paragon has secured the majority of its revenue days in 2012 and 2013, ensuring visible cash flows during this challenging period. As of June 30, 2012, based on earliest redelivery dates, we have secured time charter revenues of approximately $58 million, out of which $24 million has been secured in 2012.”
Mr. Bodouroglou concluded, “We remain confident that our proactive approach in addressing actual and potential deficiencies will enable the Company to overcome the difficult times ahead.”
Second Quarter 2012 Financial Results
Gross time charter revenue for the second quarter of 2012 was $12.7 million, compared to $25.1 million for the second quarter of 2011. The Company reported net income of $0.2 million, or $0.003 per basic and diluted share, for the second quarter of 2012, calculated on 59,208,321 weighted average number of basic and diluted shares outstanding for the period and reflecting the impact of the non-cash items discussed below. For the second quarter of 2011, the Company reported net loss of $16.8 million, or $0.280 per basic and diluted share, calculated on 58,254,929 weighted average number of basic and diluted shares.
Excluding all non-cash items described below, adjusted net income for the second quarter of 2012 was $0.5 million, or $0.008 per basic and diluted share, compared to adjusted net income of $5.2 million, or $0.087 per basic and diluted share, for the second quarter of 2011.
EBITDA for the second quarter of 2012 was positive $6.3 million, compared to negative $4.8 million for the second quarter of 2011. EBITDA for the second quarter of 2012 was calculated by adding to net income of $0.2 million, net interest expense and depreciation that, in the aggregate, amounted to $6.2 million. Adjusted EBITDA, excluding all non-cash items described below, was $6.6 million for the second quarter of 2012, compared to $16.5 million for the second quarter of 2011.
The Company operated an average of 10.8 vessels during the second quarter of 2012, earning an average TCE rate of $11,878 per day, compared to an average of 11.8 vessels during the second quarter of 2011, earning an average TCE rate of $22,415 per day.
Total adjusted operating expenses for the second quarter of 2012 equaled $6.7 million, or approximately $6,870 per day per vessel, including vessel operating expenses, management fees, general and administrative expenses and drydocking costs, but excluding $0.8 million of share-based compensation for the period. For the second quarter of 2011, total adjusted operating expenses were $8.3 million, or approximately $7,734 per day per vessel, including the same items as mentioned above, but excluding $1.3 million of share-based compensation.
As of June 30, 2012, the Company owned approximately 21.1% of the outstanding common stock of Box Ships Inc. (NYSE:TEU) (“Box Ships”), a former wholly-owned subsidiary of the Company which successfully completed its initial public offering in April 2011. Currently, following the share offering concluded by Box Ships on July 13, 2012, the Company owns approximately 16.7% of the outstanding common stock of Box Ships. The investment in Box Ships, an affiliate, is accounted for under the equity method and is separately reflected on Company’s unaudited condensed consolidated balance sheet. For the second quarter of 2012, the Company recorded income of $0.4 million, representing its share of Box Ships’ net income for the period, compared to $0.5 million for the second quarter of 2011. In the second quarter of 2012, we received a cash amount of $1.0 million representing dividend distributions from Box Ships.
Second Quarter 2012 Non-cash Items
The Company’s results for the three months ended June 30, 2012 included the following non-cash items:
An unrealized gain from interest rate swaps of $0.5 million, or $0.008 per basic and diluted share, respectively.
Non-cash expenses of $0.8 million, or $0.013 per basic and diluted share, relating to the amortization of the compensation cost recognized for non-vested share awards issued to the Company’s executive officers, directors and employees.
In total, these non-cash items decreased net income by $0.3 million, or $0.005 per basic and diluted share, for the three months ended June 30, 2012.
Six months ended June 30, 2012 Financial Results:
Gross time charter revenue for the six months ended June 30, 2012, was $25.9 million, compared to $54.1 million for the six months ended June 30, 2011. The Company reported net income of $0.9 million, or $0.015 per basic and diluted share, for the six months ended June 30, 2012, calculated on 59,131,947 weighted average number of basic and diluted shares outstanding for the period and reflecting the impact of the non-cash items discussed below. For the six months ended June 30, 2011, the Company reported net loss of $11.4 million, or $0.192 per basic and diluted share, calculated on 57,276,048 weighted average number of basic and diluted shares.
Excluding all non-cash items described below, adjusted net income for the six months ended June 30, 2012, was $1.6 million, or $0.026 per basic and diluted share. Adjusted net income for the six months ended June 30, 2011 was $12.0 million, or $0.203 per basic and diluted share.
EBITDA was $13.0 million for the six months ended June 30, 2012, compared to $12.8 million for the six months ended June 30, 2011. This was calculated by adding to net income of $0.9 million for the six months ended June 30, 2012, net interest expense and depreciation, that in the aggregate, amounted to $12.1 million for the six months ended June 30, 2012. Adjusted EBITDA, excluding all non-cash items described below, was $13.7 million for the six months ended June 30, 2012, compared to $34.8 million for the six months ended June 30, 2011.
The Company operated an average of 10.4 vessels during the six months ended June 30, 2012, earning an average TCE rate of $12,618 per day, compared to an average of 12.4 vessels during the six months ended June 30, 2011, earning an average TCE rate of $23,243 per day.
Total adjusted operating expenses for the six months ended June 30, 2012, were $12.8 million, or approximately $6,779 per day, including vessel operating expenses, management fees, general and administrative expenses and dry-docking costs, but excluding $1.6 million of share-based compensation for the period. For the six months ended June 30, 2011, total adjusted operating expenses were $17.1 million, or approximately $7,615 per day, including vessel operating expenses, management fees and general and administrative expenses and drydocking costs, but excluding $2.9 million of share-based compensation.
For the six months ended June 30, 2012, the Company recorded $1.4 million income, representing its share of Box Ships’ net income for the period, compared to $0.5 million for the six months ended June 30, 2011. In the first half of 2012, we received a cash amount of $2.1 million representing dividend distributions from Box Ships.
Six months ended June 30, 2012 Non-cash Items
The Company’s results for the six months ended June 30, 2012, included the following non-cash items:
• An unrealized gain from interest rate swaps of $0.9 million, or $0.015 per basic and diluted share, respectively.
• Non-cash expenses of $1.6 million, or $0.026 per basic and diluted share, relating to the amortization of the compensation cost recognized for non-vested share awards issued to the Company’s executive officers, directors and employees.
In the aggregate, these non-cash items decreased net income by $0.7 million, which represents a $0.011 decrease in earnings per basic and diluted share, for the six months ended June 30, 2012.
Cash Flows
For the six months ended June 30, 2012, the Company generated net cash from operating activities of $7.4 million, compared to $24.7 million for the six months ended June 30, 2011. For the six months ended June 30, 2012, net cash used in investing activities was $22.0 million and net cash from financing activities was $7.7 million. For the six months ended June 30, 2011, net cash from investing activities was $16.2 million and net cash used in financing activities was $55.5 million.
Financing Update
As of June 30, 2012, we are not in compliance with the EBITDA coverage ratio covenant contained in one of our loan agreements and the security cover ratio contained in four of our loan agreements. As a result, the Company may be required either to prepay indebtedness, provide additional collateral in the form of cash or other property or obtain waivers and amendments to the respective terms of the facilities. The Company is currently in discussions with its respective lenders in order to address the issue in a mutually beneficial way. If the Company is not able to reach a mutually acceptable resolution with its lenders, our lenders may reclassify our indebtedness as a current liability, accelerate our indebtedness and foreclose their liens on our vessels, which would impair our ability to continue to conduct our business.
Conference Call and Webcast details
The Company’s management team will host a conference call to discuss its second quarter and six months ended June 30, 2012 results on August 23, 2012 at 9:00 am Eastern Time.
Participants should dial into the call ten minutes before the scheduled time using the following numbers 1-877-317-6789 (USA) or +1-412-317-6789 (international) to access the call. A replay of the conference call will be available until August 31, 2012 and can be accessed by dialing 1-877-344-7529 (USA) or +1-412-317-0088 (international) and using passcode 10017773.
Slides and audio webcast
Participants should register on the website approximately ten minutes prior to the start of the webcast. If you would like a copy of the release mailed or faxed, please contact Allen & Caron Investor Relations at 212-691-8087.
Fleet List
Drybulk Fleet
The following tables represent our drybulk fleet and the drybulk newbuilding vessels that we have agreed to acquire as of August 23, 2012.
Operating Drybulk Fleet
(1) Average number of vessels is the number of vessels that constituted our fleet for the relevant period, as measured by the sum of the number of calendar days each vessel was a part of our fleet during the period divided by the number of calendar days in the period.
(2) Available days for the fleet are the total calendar days the vessels were in our possession for the relevant period after subtracting off-hire days for major repairs, drydocks or special or intermediate surveys.
(3) Calendar days are the total days we possessed the vessels in our fleet for the relevant period including off-hire days associated with major repairs, drydockings or special or intermediate surveys.
(4) Fleet utilization is the percentage of time that our vessels were available for revenue generating available days and is determined by dividing available days by fleet calendar days for the relevant period.
(5) Time charter equivalent (“TCE”) is a measure of the average daily revenue performance of a vessel on a per voyage basis. Our method of calculating TCE is consistent with industry standards and is determined by dividing Net Revenue generated from charters less voyage expenses by available days for the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage. TCE is a non-GAAP standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance despite changes in the mix of charter types (i.e., spot voyage charters, time charters and bareboat charters) under which the vessels may be employed between the periods.
(6) Daily vessel operating expenses, which includes crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs, is calculated by dividing vessel operating expenses by fleet calendar days for the relevant time period.
(7) Daily drydocking expenses are calculated by dividing drydocking expenses by fleet calendar days for the relevant time period.
(8) Daily management fees - related party adjusted are calculated by dividing management fees charged by a related party, excluding share based compensation to the management company, by fleet calendar days for the relevant time period.
(9) Daily general and administrative expenses adjusted are calculated by dividing general and administrative expenses, excluding non-cash expenses relating to the amortization of the share based compensation cost for non-vested share awards, by fleet calendar days for the relevant time period.
(10) Total vessel operating expenses (“TVOE”) is a measurement of our total expenses associated with operating our vessels. TVOE is the sum of vessel operating expenses, drydocking expenses, management fees and general and administrative expenses. Daily TVOE adjusted is calculated by dividing TVOE, excluding non-cash expenses relating to the amortization of the share based compensation cost for non-vested share awards and share based compensation to the management company, by fleet calendar days for the relevant time period.
(1) The Company considers EBITDA to represent net income plus net interest expense and depreciation and amortization. The Company’s management uses EBITDA and Adjusted EBITDA as a performance measure. EBITDA and Adjusted EBITDA are not items recognized by U.S. GAAP and should not be considered as an alternative to net income, operating income or any other indicator of a Company’s operating performance required by U.S. GAAP. The Company’s definition of EBITDA and Adjusted EBITDA may not be the same as that used by other companies in the shipping or other industries. The Company believes that EBITDA is useful to investors because the shipping industry is capital intensive and may involve significant financing costs. The Company excluded non-cash items to derive the adjusted net income and the adjusted EBITDA because the Company believes that these adjustments provide additional information on the fleet operational results.
(2) Excludes a portion of depreciation charged on purchase price adjustment allocated to vessel cost for vessels acquired with below market charters.
Reconciliation of U.S. GAAP Financial Information to Non-GAAP Financial Information
Net Income and Adjusted Net Income Reconciliation
(1) Adjusted Net Income and Adjusted earnings per share are not items recognized by U.S. GAAP and should not be considered as alternatives to Net Income and Earnings per share, respectively, or any other indicator of a Company’s operating performance required by U.S. GAAP. The Company excluded non-cash items to derive at the Adjusted Net Income and the Adjusted earnings per share basic and diluted because the Company believes that these adjustments provide additional information on the fleet operational results. The Company’s definition of Adjusted Net Income and Adjusted earnings per share may not be the same as that used by other companies in the shipping or other industries.
Reconciliation of U.S. GAAP Financial Information to Non-GAAP Financial Information
Net Income and Adjusted Net Income Reconciliation
(Expressed in United States Dollars)
U.S. GAAP Financial Information
(1) Adjusted Net Income and Adjusted earnings per share are not items recognized by U.S. GAAP and should not be considered as alternatives to Net Income and Earnings per share, respectively, or any other indicator of a Company’s operating performance required by U.S. GAAP. The Company excluded non-cash items to derive at the Adjusted Net Income and the Adjusted earnings per share basic and diluted because the Company believes that these adjustments provide additional information on the fleet operational results. The Company’s definition of Adjusted Net Income and Adjusted earnings per share may not be the same as that used by other companies in the shipping or other industries.
 

Date: August 24, 2012

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