Dryships Inc. Reports Financial and Operating Results for the Second Quarter 2010
July 28, 2010, Athens, Greece. DryShips Inc. (NASDAQ: DRYS), or the Company, a global provider
of marine transportation services for drybulk cargoes and offshore oil deepwater drilling, today
announced its unaudited financial and operating results for the second quarter and six-month period
ended June 30, 2010.
Second Quarter 2010 Financial Highlights
o Included in the second quarter 2010 results are non-cash amortization of debt issuance costs, including those relating to our convertible senior notes, totaling $7.9 million, or $0.03 per share.
o Included in the second quarter 2010 results are losses incurred on our interest rate swaps, amounting to $63.8 million, or $0.25 per share.
• Basic earnings per share for the second quarter of 2010 includes a non-cash accrual for the cumulative payment-in-kind dividends on the Series A Convertible Preferred Stock, amounting to $2.5 million, which reduces the income available to common shareholders. Basic earnings per share is calculated as net income less accrued dividends on preferred stock divided by weighted average number of common shares outstanding.
• The Company reported adjusted EBITDA of $152.3 million for the second quarter of 2010 as compared to $74.2 million in the same period in 2009. For the first half of 2010 adjusted EBITDA rose to $268.8 million compared to $24.5 million in the first half of 2009.
George Economou, Chairman and Chief Executive Officer of the Company commented,:
“We are pleased to report another quarter of solid operational results with both the drybulk and drilling segments performing as per expectations. The semi-submersibles continued to perform at close to 100% earnings efficiency and maintained a good safety record. During the second quarter, we were opportunistic and reopened the previously issued senior convertible notes raising an additional $240 million, further strengthening the balance sheet.
With $864 million in liquidity, we retain the flexibility to make the necessary payments for the drillships until financing is arranged or for vessel acquisitions as opportunities arise. The dry cargo freight market was relatively strong in the first half of 2010, with Panamaxes averaging $30,155 per day. In July, dry bulk freight rates have dropped significantly from the level seen earlier in the second quarter as, among other factors, steel mills undergo maintenance and overbuilt steel inventories are run down. DryShips is insulated from this seasonality as our drybulk carriers are almost 100% fixed for remaining 2010 and 82% for 2011. This seasonal slowdown in the market is expected to be short lived as long-term fundamentals of the drybulk market remain strong. If on the other hand this downturn is prolonged we will be poised to take advantage of opportunities that will arise.
“The moratorium imposed on all deepwater drilling in the US Gulf of Mexico is expected to be a short term negative for the industry as some rigs may move out of the region and compete for business elsewhere. However, in the medium to long term the resulting emphasis on modern equipment and safety measures is expected to be a positive development for the industry overall. While it’s early to authoritatively say what the actual regulations will be one expected result will be a focus on newer equipment. With four state of the art sixth generation drill ships, we believe that any new safety regulations will be advantageous for us. There are several older units in the mid and deep water segments and it can be expected that customers may want to replace these older units with more capable modern units from the ultra deepwater fleet. Furthermore, we expect that customers drilling in sensitive areas such as offshore Greenland or in the North Sea or in the Canadian Arctic will insist on having two drillships to drill a well instead of one as is the case now, effectively doubling rig demand from that particular well. Furthermore, with a stricter inspection and safety regime we would expect that the time taken to drill the same well will be effectively longer than what it is now. An increase in operating costs as a result of higher insurance premiums, more training or inspections, is also expected.
“It is important to note that although the US Gulf of Mexico is an important area for deep and ultra deepwater drilling it isn’t the only area for growth. West Africa and Brazil remain prolific in terms of discoveries and we are now seeing drilling in many new areas such as East Africa, Mediterranean Sea, Black Sea, Red Sea, India and the rest of the Asia-Pacific.
“Ocean Rig is an experienced ultra deepwater rig operator that has drilled in harsh weather and sensitive environments with almost 10 years of experience. We have drilled 79 deep and ultra deepwater wells in 11 locations for 16 clients. We comply with the safety standards required to operate in the Norwegian North Sea, which are some of the strictest in the world. The long-term prospects of the ultra deepwater sector remain bright and we remain committed to the sector.”
Financial Review: 2010 Second Quarter
The Company recorded net income of $8.7 million, or $0.02 basic and diluted earnings per share, for the three-month period ended June 30, 2010, as compared to a net income of $51.5 million, or $0.24 basic and diluted earnings per share, for the three-month period ended June 30, 2009. Adjusted EBITDA, which is defined and reconciled later in this press release, was $152.3 million for the second quarter of 2010 as compared to $74.2 million for the same period in 2009.
Included in the second quarter 2010 results are various items totaling $71.7 million, or $0.28 per share, which are described at the beginning of this press release. Excluding these items, our adjusted net income amounts to $80.4 million, or $0.30 per share.
Basic earnings per share, as defined earlier in this press release, for the second quarter of 2010 includes a non-cash accrual for the cumulative payment-in-kind dividends on the Series A Convertible Preferred Stock, amounting to $2.5 million, which reduces the income available to common shareholders.
For the drybulk carrier segment, net voyage revenues (voyage revenues minus voyage expenses) increased by $8.9 million to $108.8 million for the three-month period ended June 30, 2010, as compared to $99.9 million for the three-month period ended June 30, 2009. For the offshore drilling segment, revenues from drilling contracts amounted to $109.0 million for the three-month period ended June 30, 2010 as compared to $100.6 million for the same period in 2009.
Total vessel and rig operating expenses and total depreciation and amortization decreased to $46.7 million and $48.3 million, respectively, for the three-month period ended June 30, 2010 from $51.4 million and $48.7 million, respectively, for the three-month period ended June 30, 2009. Total general and administrative expenses declined to $16.8 million in the second quarter of 2010 from $21.9 million during the comparative period in 2009.
Interest and finance costs, net of interest income, was relatively stable at $24.1 million for the threemonth period ended June 30, 2010, compared to $22.1 million for the three-month period ended June 30, 2009.
About DryShips Inc.
DryShips Inc., based in Greece, is an owner and operator of drybulk carriers and offshore oil deep water drilling that operate worldwide. As of the day of this release, DryShips owns a fleet of 39 drybulk carriers (including newbuildings) comprising seven Capesize carriers, 30 Panamax carriers and two Supramax carriers, with a combined deadweight tonnage of over 3.5 million tons, two ultra deep water semisubmersible drilling rigs and four ultra deep water newbuilding drillships.
DryShips Inc.’s common stock is listed on the NASDAQ Global Market where it trades under the symbol "DRYS".
Visit the Company’s website at www.dryships.com
DryShips Inc.