Fairfax Financial Holdings Limited

David Sokol - Chairman Bing Chen - President and CEO Ryan Courson - Chief Financial Officer Peter Curtis - EVP and Chief Commercial and Technical Officer

Ken Hoexter - Bank of America/Merrill Lynch Sahm D. Cho - Wells Fargo Securities Chris Snyder - Deutsche Bank Noah Parquette - JPMorgan Michael Gyure - Janney Montgomery Scott

Good morning, everyone, and thank you for joining us to discuss Seaspan's second quarter earnings. Yesterday, after the market closed, we issued a press release announcing Seaspan's second quarter results for the period ended June 30, 2018.

The release as well as the accompanying presentation for this conference call are available in the Investor Relations sections of our website. I would like to remind you that our discussion today contains forward-looking statements.

Actual results may differ materially from those stated or implied by forward-looking statements, due to risks and uncertainties associated with our business which are discussed in the risk factor section of our annual report filed with the SEC on Form 20-F for the year December 31, 2017. Our risk factors may be updated from time to time in our filings with the SEC.

Please note that we assume no obligation to update any forward-looking statements. During this call, we will discuss certain non-GAAP financial measures, including adjusted EBITDA, cash available for distribution to common shareholders, normalized net earnings, and normalized diluted earnings per share.

For definitions of such non-GAAP financial measures and for reconciliations of such measures to most closely comparable U.S. GAAP measures, please refer to our earnings release or the appendices at the back of the earnings presentation.

I would also like to highlight that this will be the last quarter we will be providing our historical non-GAAP measures. For the third quarter earnings release and 6-K we will only provide GAAP measures.

With that, I will now pass the call over to our Chief Executive Officer, Bing Chen.

Thank you, Ryan and good morning everyone. Please turn to Slide 3 and I will discuss the highlights for the second quarter.

In summary, we are executing on our strategy and I'm pleased with our performance. Our operating results were solid and in line with the guidance we provided in May.

I'm proud of our team for growing and strengthening our franchise by delivering on our forecast results. The acquisition and seamless integration of GCI has been successful and has contributed significantly to our second quarter growth.

Revenue came in at the upper end of the range at approximately $282 million, the increase from prior years driven by GCI and the delivery of four 10,000 TEU containerships on a long term fixed rate charter with CMA CGM. Ship operating cost per ownership day in the second quarter were in line with our first quarter results and increased to $6156 from $5577 in last year's same quarter.

This is primarily due to timing with an increase in purchase received for stores and spare parts during the quarter that will be consumed throughout the remainder of the year. For accounting purpose however, these purchase are fully expensed upon receipt.

As we grew our feet to 112 vessels the utilization of 98.6% was improved from last year's second quarter performance as well as our first quarter's performance of 96.8%. For the second quarter adjusted EBITDA was approximately $178.6 million compared to $153.9 million in last year's second quarter.

GAAP EPS was $0.34 per diluted share versus $0.11 per diluted share in the second quarter of 2017 with normalized EPS of $0.23 per diluted share compared with $0.17 per diluted share in the second quarter of 2017. During the second quarter, we further grew our operating fleet with the delivery of four 10,000 TEU containerships on a long term fixed rate charter with CMA CGM while completing the integration of GCI which we closed towards the end of Q1.

More importantly, we further improved equity capital base through our previously announced agreement with Fairfax Financial Holdings to invest an additional $500 million of equity into Seaspan. This investment will increase Fairfax's total investment in Seaspan to $1 billion which is a significant long-term commitment to Seaspan from a long-term value investor such as Fairfax.

Both the investment amount and structure are transformative to Seaspan. As Fairfax's increased investment further strengthens our equity capital base substantially improves our access to capital, continues to reduce funding cost, builds towards achieving an investment grade rating, and enhances our position to lead consolidation of fragmented containership sector and pursuing other attractive investment opportunities.

Lastly, I want to highlight our focus on improving our credit profile and progressing on the long-term plans to become investment grade. We recently announced the redemption of our 10.5% coupon Series F preferred shares on July 23, which is consistent with our capital allocation strategy and reflects our ongoing commitment to enhanced the company's capital structure.

On a personal note, I wanted to share some of my observations since joining Seaspan earlier this year. Our team, with the support of our Board and the guidance of our Chairman, David Sokol, have accomplished a significant amount over the past several months.

We will continue to build on the momentum, excel on our recent successes. We're investing into a talented and dedicated team for all functional areas in our organization and I want to thank the team for all of their commitment, hard work and contributions.

We continue to make progress in a number of commercial and operational areas, executing our strategic initiatives and key priorities which would translate to a strong, reliable platform for our customers, long-term franchise value for our shareholders, and sustainable future for our employees. As I laid out at our strategy at the beginning of the year, we are committed to focusing on; one, operational excellence; two, strengthening customer partnerships; three, enhancing our financial strength and stability; four, pursuing accretive growth opportunities; and five, capital allocation.

With that, I will now pass the call over to Peter Curtis, who will discuss current industry conditions.

Thank you, Bing. Good morning everybody.

Please turn to Slide 5. While we returned a good majority of our tonnage on long-term charters we remain confident about long-term improving industry fundamentals and conditions as supply rationalization is continuing to reduce available tonnage of containerships.

The industry order book continues to decline the base will delever and ordering remains restrained at currently just under 13% of the existing fleet, which remains amongst the lowest levels in decades. Considering that newbuilds take around two years from contract to delivery, we foresee that this improvement dynamic to put us at least into 2020.

The global idle fleet currently stands at about 1.6% of the global fleet. Some seasonal softening is expected in the summer months, but we have seen significant improvements in the market since 2017.

The total idle fleet of vessels over 500 TEU in size now is just about 340,000 TEU, with this meaning round about 140 vessels, most of which are less than 2000 TEU in size. Furthermore, scrapping volumes have declined dramatically from a 2016 high indicating a reaction to the effects of supplier rationalization.

Please turn to Slide 6. The chart on the top of the page shows the very limited supply of available tonnage across the range of sizes between 4000 and 10,000 TEU, recalling that there is almost no construction in the 3500 to 9000 TEU sectors for several years.

Of particular note, there are currently no available vessels in the wide beam [ph] 4300 TEU to 5300 TEU and available classic Panamaxes have fallen to a handful of ships worldwide, some of which remain in the long term layer. The limited number of deliveries scheduled for 2018 and 2019 and continuing restraint on newbuild ordering supports our view that the market will continue to improve over the next few years.

Please turn to Slide 7. Despite recent spot market softening, some of which was seasonality related, we continued to see broad based demand growth on both primary and secondary trades, which combined with the improving supply backdrop is expected to lead to continued improvement of charter rates.

The chart on top of the page illustrates those dynamics very well. While growth on primary trades is a major contributor, the demand growth across all regions is a key industry driver, pushing demand for our short-term charter tonnage.

As customer deploy more vessels to growing trades around the world and most newbuild deliveries which are typically large vessels are deployed to the Asia-Europe or transpacific trades. As the chart on the bottom of the page illustrates, global containerized trade growth was 6.8% in 2017, the highest level in six years and was forecast to exceed 4% again in 2018 which is just below the forecast compared to growth with 2018.

The declining order book and newbuild ordering discipline will continue to drive slower capacity growth which is expected to be outsized by demand growth in 2019. Given the typical 24-month lead time for vessel orders these favorable supply and demand trends could continue through 2020.

I would now like to pass the call over to Ryan to discuss our financial results and forward looking guidance.

Thank you, Peter. If everyone could please turn to Slide 8, I will provide a summary of our financial results for the second quarter before going into our third quarter guidance.

For the second quarter revenue increased by $77.1 million compared to the same quarter in the prior year. This increase was primarily due to the contribution from the 16 vessels we acquired from GCI in the amount of $52.8 million.

On the ship operating expense side, the ship operating expense for the quarter was $58.8 million an increase of $13.9 million from the same quarter of last year. This increase was primarily driven by an increase of 1509 ownership days which again was primarily driven by the vessels acquired from GCI.

In addition to that we also had four vessel deliveries that Bing mentioned that were delivered to CMA CGM. We also had a small increase in higher spares and repair spending as discussed by Bing earlier in the call.

On G&A, G&A expense was $9.1 million. The increase over the prior period was primarily due to an increased compensation expense which included transition payments to our former CFO.

On the operating lease side, this quarter came in at $32.3 million, an increase of $4.2 million from the same quarter of last year. The increase over the prior year was primarily related to a vessel delivery in 2017 that was financed through a sale-leaseback transaction and in addition higher LIBOR rates.

Interest at the hedged rate increased primarily due to the debt assumed as part of the acquisition of GCI, an increase in our operating debt for delivered vessel, the issuance of debentures for Fairfax, and an increase in LIBOR as previously discussed. Earnings per share on a normalized diluted EPS basis for the quarter was $0.23 compared to $0.17 in the same quarter in the prior year.

GAAP diluted EPS for the quarter was $0.34 compared to $0.11 in the same quarter in the prior year. Moving to the balance sheet, our cash balance at the end of Q2 2018 including short-term investments was approximately $271.5 million.

Total borrowings of $4.5 billion are up slightly from the prior quarter due primarily to the draws into the two secured term loan facilities used to partially finance four of our newbuild 10,000 TEU vessels which were delivered in may. At June 30, 2018 our current liabilities increased to $870 million.

This is primarily related to the upcoming maturity of our $338 million Baby Bond due in April 2019. Given the increase in current liabilities, we have a current working capital deficiency at June 30, 2018.

This deficiency may increase in future periods due to the classification of the Fairfax debentures to current liabilities. We have planned to address this deficiency through cash generated from operations and additional sources of funds in the capital markets as available.

In relation to Fairfax's $500 million equity investment, the Fairfax debentures were amended to allow Fairfax to call for an early redemption of some or all of the debentures on each anniversary date of issuance. As a result, for accounting purposes, we will reclassify the 2018 Fairfax debentures from long-term debt to current debt in the third quarter.

As a reminder, as of August 02, 2018, Fairfax owns approximately 22% of Seaspan's common equity, and we expect them to continue to be a supportive capital partner going forward. That covers the current quarter, now please turn to Slide 9 while we go over guidance for the third quarter.

As always, please note that the following amounts are based on current information and estimates and are subject to change. We do not intend to update our quarterly guidance in the ordinary course of communications.

We are providing quarterly guidance today for the third quarter and will provide quarterly guidance for the fourth quarter on our next earnings call. however, beginning in 2019 we will issue only annual guidance as we believe it is more consistent with our strategy to build long-term shareholder value.

Lastly, as mentioned during the start of the call, beginning in the third quarter we will be no longer reporting our historically disclosed non-GAAP financial measures. We are comfortable with GAAP operating measures and believe they reflect our business.

In the future we may disclose certain non-GAAP measures, but only if we believe they provide investors with a more helpful and complete understanding of our results, while being consistent with how we view our financial results internally. For the third quarter we anticipate revenue will be between $291 million and $295 million.

The increase versus prior year quarter will be driven by the contribution from the GCI acquisition. This contribution will also be the primary driver for the increase in guidance relating to the ship operating expenses and D&A.

Ship operating expense is expected to be within a range of $59 million to $63 million. Operating lease expense is expected to be in a range between $32 million and $34 million.

Depreciation and amortization is expected to be in a range between $63 million and $66 million and G&A expense is expected to be in a range between $8 million and $10 million. Finally, we wanted to clarify the impact of the Fairfax warrants related to the Fairfax investment on the number of weighted average shares outstanding.

Fairfax was issued warrants for approximately 38.46 million Class A common shares on the closing of its first debenture investment of $250 million on February 14, 2018. To be clear these warrants were outstanding since February 14, 2018.

As such, under the tertiary [ph] stock method they were considered dilutive relative to our average share price during the period they were outstanding and increased our dilutive shares in our calculation of diluted EPS. As part of a definitive agreement previously disclosed on May 31, 2018, Fairfax agreed to exercise its February 14, 2018 tranche of warrants at a price of 6.50 per share on July 16, 2018.

Fairfax completed this exercise of all 38.46 million of its February 14, 2018 warrants on July 16, 2018 or Q3 2018 the 34.46 million common shares issued as a result of Fairfax exercise of the February 2018 warrants will be included in our basic number of shares outstanding for the July 16, 2018 exercise date. In addition, the warrants would be included in the diluted share count from July 01, 2018 until they were exercised on July 16, 2018.

On March 13, 2018, Fairfax entered into its second debenture investment of $250 million to be funded in January 2019. Fairfax will be issued 38.46 million warrants upon the expected closing date in January 2019.

To be clear, the January 2019 warrants have not been issued to Fairfax yet and therefore do not impact our diluted shares outstanding for any period during 2018. Additionally, as part of the July 16, 2018 agreement, Fairfax agreed to exercise all of its January 2019 warrants in January 2019 at which time Fairfax will acquire another 38.46 million Class A common shares at an exercise price of $6.50 per share.

Our basic and diluted share count will increase from the date the warrants are exercised. In consideration for the early exercise by Fairfax of these two tranches of warrants which would not have expired until 2025 and 2026 respectively, Seaspan as part of the July 16, 2018 agreement issued to Fairfax additional warrants to acquire 25 million Class A common shares at an exercise price of $8.05 per share.

These warrants have a seven-year term. That concludes my formal remarks, and with that, I'd like to turn the call over to our Chairman, Mr.

David Sokol.

Thank you, Ryan. First I'd like to start off by saying that on behalf of the Board and myself we're pleased with the second quarter results and the very significant progress the team has made in recent months.

As a team however we'll never be satisfied. We believe that the management team is doing an excellent job and is focusing on the right set of priorities and executing on a strategy that seeks to deliver long-term shareholder value.

The recent acquisition and seamless integration of GCI demonstrates the ability to successfully and prudently grow the business. While the Fairfax Financial Holdings investments further increase our equity capital base and provide the company with the flexibility to pursue attractive opportunities for future growth.

This is a disciplined management team building a solid foundation to create sustainable long term shareholder value. Management has the full support of the Board as well as from Seaspan's two largest shareholders, the Washington family and Prem Watsa's Fairfax Financial Holdings.

For reference Fairfax now owns 22% of Seaspan's Class A common shares outstanding and will own an additional 38.5 million shares upon the exercise of warrants in January 2019. Seaspan appreciates having such thoughtful, long term investors whose perspective and insights are truly valued and well aligned with our strategic vision.

We thank you for your time today. I look forward to updating you on progress each quarter going forward.

With that, I’ll pass the call back to the operator who will open up the call for questions.

Great, good morning. Can you Ryan, can you talk a little bit about your outlook, are you forecasting lower utilization or spot rates has been moved forward just given some of the overcapacity you talked about on the liners, and do you see any pushback on pricing from the liners given that may be seasonal slowdown that Peter talked about?

Hey, good morning Ken. This is Bing.

I would just give a general sense and Ryan will give you more. In general, I think the market as you know for the past six months actually has been very strong in terms of rate that we see almost doubled and particularly in a sector of 4250.

As Peter mentioned in the market outlook is that over the past months or so the markets start to flatten out, partly due to the seasonality, the other part of it is also due to the changes in the liners planning. And the other part is also is overshadowed by the thoughts or threats of the trade war.

So we see that rates actually slide to with a slight volatility as over the past months and we continue to see that in the coming months throughout the summer. Peter, do you have anything else to add to that?

I think that’s right, essentially the – repeating what I said earlier is we believe that the fundamentals remain correct. This year there has been a little bit of a reversal of what we saw in the prior few years where the growth and trade exceeded the growth or the supply to the fleet.

This year we've seen the supply to the fleet being about a percent more than the growth in trade, all of that supply is in the large vessel size or a majority is the large vessel size which is primarily on the Far East-Europe trade and somewhat on the transpacific trade, so we've seen a little bit of softening due to that. But still the trends look good, the order book depletes, it takes two years from contract to delivery.

We've had this year a significant amount of tonnage come in. If you look at the first couple of quarters it was around about 350,000 TEU per quarter, going into Q4 this year that drops down to about half of that, 180,000 TEU.

If you look at it on an annual basis 2018 we've got something around $1.4 million TEU, that would have been supplied by year end. Next year it is less than a million is in the pipeline and for 2020 and 2021 combined it’s about a $1 million TEU as well.

So the growth dynamics in our view will again be on top of the supply dynamics and therefore we believe that of the few bumps that be seen in the past months and certainly at this time with the seasonality too, the fundamentals are all correct.

And then Ken this is Ryan, just on - from a expectation standpoint, we don't disclose our view on future utilizations specifically, but the majority of our revenue is on long-term contract and we do provide quarterly guidance on a revenue basis and so the short term revenue kind of falls out of that, so that's where I would steer you to.

Okay, yes I was just trying to get a concept of - that was it Ryan on the utilization and then also what your thoughts on the spot just for those short term charters on kind of what you have built into that outlook. But I guess stepping back if we're looking at increasing trade war kind of debate going on, how do you think about your exposure to that?

I know just given the size of your vessels, it’s not all transpac, but what do you think your fleet is trading on and how do you think that impacts that global trade as we go forward?

Yes, Ken this is Bing again. That’s a good question.

I think first of all from a macro perspective, if we’re looking at U.S. and China, the bilateral trade according to the research, just only on the container side accounts for about 7% of the global containership trading.

Out of the 7% was the U.S., China tariff currently it’s in the impact in other words in force is about 22.7% of the global container trade impact and that is reflected as about 29% of the trans-pacific volumes. The impact from the above numbers so far is relatively limited with the widest threat in terms of the further trade war that is going on.

The potential impact, it could be about 5.6% of the global container trade and that is translate into about 59% of the trans-pacific volumes. That being said, as for Seaspan we as we said it earlier, we majority of our fleet is in long-term charter.

We do have spot exposure, but the spot exposure in terms of the total fleet by the number of the vessels is roughly about one-third of our – less than one-third of our fleet by the numbers not by GU. And at the same time, right now because we have a broader customer base and we have a good customer, I would say service track record, we actually majority, almost all of our vessels are all employed, so we have no idle vessels at the moment and we foresee that we’ll continue.

Ken, it’s Peter here. Just a few, if you look thinking cycling back to your question relating to what Bing has just been saying, most of our or nearly all of our short term fleet is on our Panamaxes and Panamaxes typically are not on trans-pacific trades.

If you have a look at the - where Panamaxes are plying the population of some 600 units, it’s amongst the most diverse of all segments really in terms of where they trade to, and out of that population of 600 units, I think daily 17 to 20 units are currently looking for employment. But all of our vessels are employed by the way.

Yes, I know it’s great. I remember when those vessels were the ones get getting parked so quick those mid 4500s as they kept getting larger and larger, so it’s good to see the utilization and size of this.

I just hit the last wrap up one real minor for Ryan, was there anything else in the interest expense line other than the interest expense just looking at the $57 million jumping up obviously so high, just want to see if there was anything other in that line item?

Yes, there was the discount of the amortization of the Fairfax notes, but outside of that, it is small things.

Okay, I appreciate the time guys. Thank you.

Hey guys, good morning. With regards to IM0 2020, can you give us some insight as to how the major liners are thinking about allocating their business going forward, especially for some of these longer charters, they are going to be coming into term once that regulation is implemented?

Hi Sahm it’s Peter. Yes, I'll try and give you some insights on that.

It depends which line or major we talk to and we are talking to just about all of our customers about 2020. I'd say that the line taken by these is somewhat like the rainbow depending on their view.

One large customer, if you recall last year said absolutely compliant fuel is the way to go, through to others where we are actively discussing to even down to some technical detail, the application of scrubbers. We’ve taken our internal view that we have no view, no deep insights to the contracts that our customers have on fuels, so it has to - our discussions and decisions have to involve very deeply our customers in terms of that as well as essentially the pay-off of the investment into scrubbers.

That’s helpful and then I guess between your various capital allocation goals, ideally you’re set on a path that showed a multitude [ph] of them in the short term, but how should investors and the equities side of the house be thinking about how, in your prioritizing or seeing them kind of dovetail and cascade together in the short term?

Hey Sahm this is Ryan. Just maybe could you be reformulate that question, just want to make sure that I’m following and able to give you a fulsome answer?

Sure. I guess when we talk – when Bing laid out his goals, he is talking about possibly clearing up the capital stack, deleveraging, getting to investment grade, but then there is also the overall long-term intent of returning some value to shareholders.

So I guess, if we start to look at building a list or kind of try to get insight into your list, how should we think that the management team is prioritizing these goals?

Got it. I appreciate that and thanks for the clarity.

So at a high level, we are very focused on enhancing our customer relationships, building long-term franchise value, and creating long-term shareholder value. And so with that, we believe financial strength and stability is a key component of all three of those metrics.

And so deleveraging is a key and core component of our strategy, and we believe that that not only enhances our balance sheet, but also creates customer value, shareholder value for a variety of reasons. But as through that deleveraging process and move towards investment grade, we are very focused on capital allocation opportunities, return opportunities.

And Bing shared his thoughts on that, but I think that as it relates to prioritization we are very focused on those three components, building and enhancing customer relationships, deleveraging and capital allocation.

Yes, just add to what Ryan has mentioned. I think in terms of what we have done just for example, on July 23, we redeemed our pref [ph] of 10.5% coupon which is very high cost in terms of the capital and in the course of our growth and also deleverage, I think these are the two elements that could potentially have attention.

I think that the way as a management and board and I think what we're looking at is that any type of growth as we said, we are very disciplined and we want to make sure that any type of growth that meets three criterias; number one, we still have the financial returns; number two, we have to have a business rationale that has to make sense; number three, that we need to take into consideration of the impact and to balance sheet effectively is the leverage. So any type of growth that we're looking at we have to be very strictly in the following these criterias and which is why we are very disciplined and patient to looking at the right opportunities.

And so therefore, as we laid out in our strategy, we are actively pursuing the opportunities at any given time. We're reviewing many different types of opportunities, both in within the containership sector as well as what I call along the containership value chain and also adjacent to the containership shipping industry in general.

That being said, we are very, very careful and this is also we are very proud of being able to have the expertise and disciplines to best allocate in our capital at - with the general direction which we are firmly committed to deleveraging and improve moving ourselves towards investment grade.

Great, thanks guys. I'll turn it over.

Hi, this is Chris Snyder on for Amit. So my first question is kind of following up around the last question on the uses of cash, clearly cash flows are ramping, the new go programs winding down and you have another $250 million from Fairfax coming in January.

So just kind of over the next six, 12 months how do you prioritize that use of capital between growth and deleveraging, should we expect you to continue paying down the other high sources of capital like we just saw a couple weeks ago or are you guys continue to be players in the S&P market over the near term?

So I'd just like to reiterate what Bing said. I think if you look empirically we saw the redemption of the Pref F notes which was a high cost of capital and that was a good return metric for us from a capital standpoint.

But we are very focused on thinking about deleveraging the balance sheet and moving towards that investment grade. And so as Bing mentioned, when we look at return opportunities outside of deleveraging, they have to hit those three hurdles that being discussed.

So our prioritization is deleveraging, but we are also very focused on evaluating return opportunities. And so I'm not sure that there would be much additional outside of the prioritization that Bing just laid out.

Okay, fair enough. And then kind of turning to the S&P market, most of the vessels you've acquired have had long term contracts, is there a sweet spot of contract duration that you guys look at when you're evaluating opportunities?

Yes, no. Look, we are very focused on the broad containership market as it relates to S&P and but we are focused more so is on returns versus contract tenor and term.

So I think what you'll see is to the extent we can engage in the S&P market our number one metric of success, our KPI there is returns on a total capital outlay. And so we look at our portfolio with a real portfolio approach short term and long term, but every single capital outlay decision we have has to be based in solid returns.

Yes, and this is Bing, that return is our primary focus and which is why, we are very selective in terms of getting into these certain deals even though they have a very long term and particularly for example in the areas of the newbuild, they have long term contracts, but those returns which we don't see them meet our criteria. So we don't have a specific duration per se, rather we're focusing on return and that return is based on the market environment and customer needs and I think that that's what we are primarily focusing on.

Yes, I definitely appreciate the focus on returns, but there's also a risk element to that of course, because in some instances the highest return could be an asset without a contract. If the market gets better that is the highest returning asset, so would it be fair to look at vessels without a contract?

So what I would say is, when we talk about returns it's always risk adjusted returns and so we don't evaluate a number on the spread sheet. We spend - as a management team we spend a significant amount of time evaluating those three hurdles that Bing mentioned whether it's the total return, the business rationale and the balance sheet.

And those are not isolated and just spread sheets but how we think from a total return risk adjusted perspective. And so, I think our internal analysis, the management team fully encompasses that component of it.

Yes, and also we never speculate in terms of what the market is going to take a position we do not do that.

Okay, fair enough. And then just lastly on the Panamax fleet, rates have doubled over the last 12 months.

These vessels have been operating on short term contracts for a while now, just given the improvement in rates which you guys consider looking at longer term contracts for these vessels and is there demand from charterers to lock these up on longer term contracts?

Yes, that's a very good question and I think because we have a broader base of a customer over the past months we see the increasing I would say inches front the liners that we would like to have a longer term of a contract. But because for us I think that we were looking at from a more broader basis, because we think as Peter shared earlier, our outlook in terms of the market, our own fleet composition in terms of the percentage of the vessels that is already under long term contract and a percentage that we will be exposed to in terms of the spot market.

And I think we will be very selective on the customer basis, the vessel basis and continue to optimize our composition of the fleet, that's how we look at it.

Okay, thank you for the color. That does it for me.

I appreciate it guys.

Yes, hi. This is Frank Conti [ph] on for Ben.

I know you guys had mentioned that most of the vessels were short term charters are the smaller ones, but for those vessels coming up for renewal, has there been much pressure from the liner companies to not renew charters or shorten duration on tariff talk and trade uncertainty?

This is Bing. From our perspective we see a rather stable, I would say the constructive dialogue that we have on a regular basis with our customers.

Okay, so you're not seeing much pushback on contract renewals?

There are always push backs, I think, it's normal course of businesses, so that we continue from our perspective, we don't see any significant change from that in terms of back and forth normal constructive dialogue.

Okay, that's helpful. The second question I had was in regard to consolidating the container sector, containership sector, is there much demand from the liners to have a larger leasing partner and kind of secondarily to that, do you see a willingness to traditional owners to sell their businesses or would it be more drawn out additions on a ship by ship basis?

Yes, thank you. This is Bing again.

To answer your question, one from the liner's perspective the management team, particularly even myself, we have been on a regular contact with our customers which are the global liners. The answer is absolutely yes.

For the simple reason is that today the - like any other industry, our industry is not an exception. Our customer demands for scale.

They demand for quality, they demand for flexibility, and with that being said the only scalable owners and operators will be able to provide that type of service and that's what our liner is increasingly is looking for a sizable owner and operator as I said with the quality, scale and flexibility. From our sector perspective, yes there are many interests and opportunities of the owners that who are looking for and are selling their businesses or portfolios.

However, as I mentioned earlier, we are very proud of being disciplined, patient. The way we're looking at our investment, any opportunities I think on one hand we are looking at, at least half a dozen of opportunities at any given time.

However, I think we were only making investment decisions when those three criterias are met, one is the financial, two is the business, three is the balance sheet.

Okay, that's helpful. Thanks very much.

Thank you. Good morning.

I guess this is for Peter, have you guys decided on a technology for your ballast water treatment systems and where are you on that process, have you made any orders and any color you can give on CapEx requirements the next few years for that?

Good morning. The short answer is yes and yes.

But I'll go a little further than that. We actually have had ballast water treatment plants on our vessels for quite some time.

The newbuilds all came out. I'll hazard a guess, and say we have at least 40 or 45 units out there which is a large portion of our fleet.

Going forward though most of it now is retrofitting. We do have a view on the technology which we prefer the UV systems.

We've had a look at many, we've trialed some of them and we are currently in final phases of negotiation for the first units that we would need to be applying coming up in 2019.

Okay, that's great. Thanks.

And then any view on CapEx requirements or you are not ready to disclose that now?

I wouldn't get into the details, but what I can say is the pricing has come well down from where we're initially budgeting.

Okay, thanks. And then I just had a broader question, obviously with the 2020 regulations coming, what is your view on liners ability to pass through this fuel expense full years, is it something that can be borne by them or is it going to be a fully pass through thing?

Thanks.

Yes, this is Bing. I think that's a very good question.

However, we don't speak on behalf of our liners, but I think if you see in the past, if we’re looking at the bunker prices changes, I think a certain liner was able to adopt a fuel surcharge and - but that's not across the board, so I think this is yet to see and I would say that is a question for liners.

Okay, that’s all I had. Thank you.

Yes, can you guys talk a little bit on the operating cost side? I guess what you’re seeing, I guess specifically I was looking more toward the newer acquired vessels versus your previous existing fleet if their operating costs are more favorable or less favorable or about the same?

Yes, I think that - this is Ryan. That's a good question.

We don't disclose or break down the operating costs on a vessel by vessel basis. I think in general each vessel has a life cycle and you would, we think of newer vessels as having a lower cost base than older vessels, but the difference isn’t substantial.

Okay and then I guess, from a maintenance perspective, drydocks I guess expected for the remainder of the year into next year, timing of those kind of things?

So from a drydock standpoint just at a high level we have - each ship has a drydock of once every five years from a CapEx guidance standpoint going forward, we don't disclose those numbers specifically, but our drydock exposure for the remaining part of the year is very minimal. The majority of that drydock expense was captured in Q1 and you'll see that reflected in our commentary in the first quarter call.

Great, thanks Ryan.

Hi, this is William on for Chris. Thank you for taking my question.

So in the context of your deleveraging process I know the interest expense kind of came in at the low end of your previous guidance range during this quarter. I know you guys didn't really give guidance for the next quarter, but how should we think about interest expense on a run rate going forward in the context of your deleveraging and as you kind of think about what debt you might want to retire and when?

This is Ryan. That's a good question and I appreciate the follow up there.

As you saw from our disclosure around the press for large capital outlays from a deleveraging standpoint our expectation is that we will provide disclosures of that kind going forward. And so you'll be able to think through how to model the debt reductions and the deleveraging plan.

That said, on the broader capital base, we provide pretty significant disclosure across the capital we have outstanding on the balance sheet and the rates associated with it. So from an interest expense standpoint your model should be pretty up-to-date.

All right, thank you and I guess a followup question you were discussing earlier about like do capital allocation opportunities and where are you're seeing opportunities, if I just kind of look at where you could see opportunities and even the second hand market or purchasing a group of vessels altogether, what type of size ranges are you most interested in from a vessel standpoint? Are you continuing to look at 10,000 TEU or larger or are you seeing opportunities in smaller TEU vessels potentially below 5,000?

This is Ryan. One of the things I'd like to highlight again is that from a capital outlay standpoint, our first metric is always risk adjusted returns flowing through to than the business rationale as well as impact on the balance sheet and our path towards deleveraging.

So from an asset specificity standpoint, we're more focused on those three hurdles versus a specific asset class. And Bing do you want to touch on kind of broader…?

In terms of the size that we, the way that we're looking at on top of what the return, what Ryan mentioned is that we're looking at our total fleet composition. That is for us because we have a broader customer base.

Our customers' needs are actually quite diversified because they need the bigger vessels, they need the smaller vessels, so from our perspective that we have the flexibility and in general we're looking at in terms of criterias as to how is our overall total 100, apparently we have 1 to 12 vessels how that fits into our fleet composition. And the other part of it is most importantly it's always, always looking at what your customer needs are.

And I think that is the driver for us on top of the returns in determining what size of vessels that we're going to acquire.

All right, thank you very much for taking my questions.

Hi guys, this is Max on for Fotis, sorry my line got dropped earlier. Just a question on the spot fleet during the quarter, can you help us out with what the Panamax vessels earned during the quarter and where they're tracking for the third quarter?

We don't disclose the spot rates on a vessel by vessel basis. I think Peter's commentary on the broad market was fairly robust and there's a number of public indexes as it relates to pricing.

And the context is one of the index and that the rate from our perspective, I think our rate is rather stable.

Okay and then last quarter David talked a little bit about maybe changing up the shareholder returns, may be mixing the dividend with some buybacks and I apologize if you guys talked about this already, but can you address that again or kind of any updates of what you're thinking there?

Sure, yes this is David. Yes, the board had a very good meeting here just a week or so ago and this was one of the top topics.

I think we feel that with the position of the company is in the industry is in today where we're growing that we're comfortable with the dividend level. We, as Bing had mentioned, as Ryan mentioned we're definitely focused on deleveraging and improving the credit quality of the business long-term, but we recognize that in shareholders need to be treated appropriately along the way, but we think there has to be a proper balance there.

And so, I would - as we've stated before I would not anticipate dividend increases in the perceivable future. And as we look at things today we don’t see them decreasing either, but we're focused on capital really moving towards reducing the overall leverage in the business, and fundamentally we just think that's critical for the long term value of the business.

And as we look at some transactions that have been done recently by some of our competitors, it's absolutely and I respect what they're doing in the sense that some of them it's a survival issue, but they are effectively taking on transactions at below their cost of capital and that's just not a sustainable business. And cost to capital ultimately over the long haul is going to be the determinant along with customer relationships and operational capabilities as to the success of the business.

So we're absolutely committed to continue work to delever the business over time. And I think that the, some of the transactions that get done and not like other industries that are below peoples cost to capital that's a short lived phenomenon and we'll wait till that passes before we take on transactions because if it doesn't meet our cost of capital we shouldn't be taking on a transaction.

So I think the dividend should be viewed as stable, you know barring some unforeseen and but not increasing and excess capital going towards properly structured acquisitions or reducing the debt level.

All right, makes sense. Thank you, guys.

So, thank you all very much for your participation and wish you a great day and look forward to seeing you at our next call. Thank you.