Top Ships Inc (TOPS) 2005 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the TOP Tankers Incorporated Third Quarter Results Conference Call. (Operator Instructions). It is now my pleasure to introduce your host, Mr. Mike Mason of Allen & Caron Investor Relations. Thank you. You may begin.

Thank you. And good morning and welcome to TOP Tankers results conference call for the third quarter ended September 30, 2005. As mentioned by the operator, I am Michael Mason of Allen & Caron Investor Relations. Before we start the call, there are a couple of items that I would like to cover.

Many of you received a copy of the press release announcing the company's results for the third quarter 2005. It was released this morning at 9:11 AM Eastern Time and covered by Dow Jones at 9:11 AM Eastern. If you did not receive a copy of the press release, it is posted in the "clients" section of our website at www.allencaron.com. Or you may call our office in New York at 212-691-8087 and we will e-mail it to you right away. It is also posted on Yahoo Finance.

This is being broadcast live over the Internet. The Internet replay will be available shortly after the end of the call. In addition, a telephonic replay of the conference call will be available for seven days by dialing 877-660-6853 from the US and Canada, or 201-612-7415 from outside the US and Canada; enter account number 286 and conference ID number 174572.

I would now like to turn the call over to Mr. Thomas Jackson, Chairman of the Board of Directors of TOP Tankers. Good morning, Mr. Jackson.

Thank you, Michael. Good morning, ladies and gentlemen. I am Tom Jackson, the Chairman of the Board of Directors of TOP Tankers Inc. It is my great pleasure to welcome you to TOP Tankers earnings conference call in respect to the third quarter 2005 results.

Before we begin, let me draw your attention to the fact that during the conference call we might make certain forward- looking statements about the company's future expectations, including future revenues and earnings. Those statements and all other statements here today, other than historical facts, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21B of the Securities Exchange Act of 1934, and as that term is defined in the Private Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties and are subject to change at any time and the Company's actual results could differ materially from expected results. The company undertakes no obligation to publicly update forward-looking statements to reflect subsequently occurring events or circumstances.

The audit committee have reviewed and recommended to the board the acceptance of the accounts for the third quarter 2005 as presented. And the Board of Directors in the meeting held yesterday approved the accounts as presented.

With me today for our conference call are Mr. Evangelos Pistiolis, President and Chief Executive Officer, and Mr. Stamatis Tsantanis, Chief Financial Officer. Mr. Pistiolis will provide you with details of TOP Tankers' operation, activities and general expectations. Furthermore, he will provide you with an overall perspective of the international tanker market together with his perceived outlook. Mr. Tsantanis will comment on the financial results of TOP Tankers, Inc. for the quarter ended September 30, 2005. Following the financial highlights the call will move into a Q&A session. I would now like to pass you over to Mr. Evangelos Pistiolis.

Thank you, Tom. Good morning, ladies and gentlemen. For the three months ended September 30, our net income was 7.9 million or $0.28 per share compared with 6.5 million or $0.42 per share for the third quarter of 2004. Voyage revenues for the third quarter of 2005 were 50 million compared to 21 million in the third quarter of the last year.

For the nine months ended September 30, our net income was 40.6 million or $1.45 per share compared to 13.5 million or $1.47 per share for the nine months ended September 30, 2004. Voyage revenues for the nine month period were 154 million compared to 46 million for the same period last year. In addition to a strong financial performance during the third quarter of 2005, we established the foundations to further expand our fleet and the management and become one of the world's largest double-hull tanker operator of Suezmax and Handymax tankers.

We sold the M/T Fearless and generated a book gain of 10 million. We also sold and leased back five Handymax tankers for a period of seven years, a transaction which qualifies as an operating lease under US GAAP. The total liquidity release from the aforementioned sale was approximately 83 million and it was immediately redeployed for the acquisition of the announced four Suezmaxes and one Handymax tanker. To date, two of the four Suezmaxes, the Stormless and the Ellen P and the Handymax, the Ioannis P have been delivered and commenced operations. Upon delivery of the final Suezmax tanker in early December, we will have organically grown the number of vessels under our management by nine tankers in 2005 to a total of 27 vessels. In addition to a significant fleet growth, we paid a total of $1.09 per share of cash dividends so far in 2005 while maintaining conservative net leverage levels of about 53%.

Fleet deployment. During the third quarter of 2005, we approximately -- excuse me -- we had approximately 81% of the fleet's net operating days on long-term employment contracts, and all profit sharing contracts generated profits above the base rate. The average daily Suezmax rate for the third quarter of 2005 was $27,075 and the average daily Handymax rate for the same period was $18,369.

For the fourth quarter, the Suezmax spot rates have picked up significantly and to date we have secured 55% of our spot days at an average of $52,500 per day while the overall Suezmax average rate is approximately 42,500 to date, including profit-sharing allocation and straight time charges. A notable example is the Ellen P, which was delivered to us yesterday in the US Gulf and has been chartered for a back-haul spot voyage at $60,000 per day. Assuming world scale 200 plus on her return to the west, the vessel could generate more than 75,000 per day on a round trip basis.

The Handymax charter rates for the fourth quarter have just started to fall from their all- time high of about 500 world scale. Still the Handymax average to date for the fourth quarter is approximately $23,000 per day including profit-sharing allocation. Once again, I would like to stress out that our profit sharing contracts settle on a quarterly basis and the generated profit is presented in the financial statements of each accounting period. On that note, I would like to pass you over to Stamatis, who will discuss with you the financial details.

Thank you, Evangelos. Good morning, ladies and gentlemen. For the third quarter of 2005, our net income increased 21% to 7.9 million from 6.5 million for the same time period last year. On a per share basis, our EPS was $0.28 compared to $0.42 last year. Our EPS number includes certain special items such as a gain from the sale of the Fearless, the non-cash expenditure of the restricted stock and general compensation provisions, and write-off of financing and convertible preferred offering expenses. After the special items, our EPS would have been $0.19 per share.

EBITDA for the third quarter increased 2.4 times to 28.3 million compared with 11.8 million for the same period last year. Voyage revenues for the third quarter of '05 also increased by 2.3 times to 50 million compared to 21 million last year. This increase is derived mainly from the 2.5 -- sorry -- 2.4 times increase of our fleet operating days. For the nine months ended September 30, 2005, our net income increased 3 times to 40.6 million from 13.5 million for the same period last. On a per share basis, our nine months EPS was $1.45 compared to $1.47 for the nine months of 2004. The nine-month EBITDA increased 3.8 times to 91.2 million compared to 23.8 million for 2004.

Voyage revenues for the nine-month period increased 3.3 times to 153.6 million compared to 46.1 million last year. Again the significant increases derived mainly by the 2.8 times increase of our fleet operating days to 5,300 in nine-month period of 2005, compared to 1,900 days in the same period year. Average operating expenses per ship per day increased for the nine-month period to 5,800 from 4,600 for the same period last year. The increase is mainly attributed to the increase of Suezmax tankers in our fleet, and a heavy dry docking schedule in the second and third quarter of this year.

Average G&A expenses for the nine-month period increased to 2,600 from 1,400 last year. However, the number includes approximately 1,200 of non-cash restricted stock expense, convertible preferred offering expenses write-off and general compensation provisions for the end of the year. Average fleet utilization rate for the nine months of 2005 increased slightly to 93.2%, despite a heavy dry-docking scheduleduring the second and third quarters of the year.

As Evangelos mentioned, the average daily Suezmax rate for the third quarter of '05 was $27,100 on the average -- and the average daily Handymax rate for the same period was 18,400. For the fourth quarter, the Suezmax daily average rate is approximately $42,500 and Handymax average rate is about $23,000 per day, net to us after profit-sharing allocation.

For 2006 we have secured approximately 66% of our estimated operating days with long-term employment contracts. At the same time, the nine Suezmaxes operating in the spot market, together with the profit sharing component of the time charter contracts, expose approximately 64% of the company's estimated operating days for '06 to potentially higher spot rates.

In October 2005, we refinanced 196 million of our existing credit facility with the Royal Bank of Scotland for a period of seven years and added a revolving credit facility of up to 350 million for a period of 10 years. Approximately 172 million of the total 350 of the revolver are currently available for further acquisitions. The average spread with the Royal Bank of Scotland was reduced from 100 basis points to 86.5 basis points. We also refinanced our swap agreements with RBS, and the loan amounts hedged with interest rate swaps are 100.5 million at a rate of 4.63% and $36.6 million at a rate of 4.66%, for a period of five and four years, respectively.

In November 2005, we entered into a 154 million new credit facility with HSH Nordbank. The facility will mature in 2013 and the average spread will be 85 basis points. Pro forma of the remaining loan draw downs, the November regular installments payment, our total indebtedness will be approximately $570 million, and our net debt-to-cap ratio will be 57%.

On that note, I would like to hand the call back to the operator.

Thank you. (Operator Instructions) Our first question comes from Natasha Boyden from Cantor Fitzgerald. Please state your question.

Hi. Good morning, gentlemen.

Good morning.

Good morning. Yes. I just wanted to just follow-up on the increase in vessel operating expenses per day. They went up pretty sizably on the Suezmaxes and on the Handymaxes. Can you just tell us again why that was?

Well, yes. First of all, we had a significant increase of the Suezmax in our fleet if you compare the nine-month period of 2004 and the nine-month period of 2005. And also we had a very heavy dry-docking scheduled, and as you know some of the dry-docking expenses are direct operating expenses in the second and third quarter of '05. And that's basically what the increase is about.

Okay.

On a going forward basis we estimate the Suezmax daily operating expenses to be in the region of $6,500 and $7,000.

Okay.

And the Handymax is between 4,500 and 5,000.

Okay. And then in terms of dry-docking for the fourth quarter and 2006, what are you expecting?

For the fourth quarter of this year we only have one vessel remaining, and will enter into service sometimes next week, and that's it for the fourth quarter. And for next year we have 15 dry-docks and approximate expense of $25 million.

Okay. Great. Then just sort of a general question. Your stock is definitely clearly valued below a lot of your peers, and a lot of your peer groups have instituted share buybacks. Is this something that you're considering, Evangelos, or would you prefer to continue buying vessels?

It clearly depends on the exact timing I would guess. Like I said before, it is something that I am considering. It is something that we have already discussed with the Board as well, I think, a couple of times. We were thinking about or I was thinking about really starting that when the stock was where it was a couple of weeks ago. Things had changed suddenly, if you want, in the past five days, the sentiment. We still believe that or I still believe that the sentiment will change to the positive as we move more into the winter. But to cut a long story short, the answer is, yes, I am considering that but it depends on what is available to buy and where the stock price is.

I guess it also depends on asset buyers (ph) as well.

Absolutely.

Okay. And then lastly if I may, Evangelos, just sort of get your general outlook on the fourth quarter? Obviously the rates have been going up pretty significantly. And really for '06, there's a lot of concern out there about the order book?

Yes. We have been listening to many analysts and some brokers about the concerns of '06. I don't necessarily share the same opinion to the -- at least not to the extent that they are -- to the extent of the problem that they are talking about. I was in the States, as you remember, about a month ago, and what I said back then and to Bloomberg is that we could foresee a very good Q4 and Q1 of next year. As far as the Q4 is concerned, we have been up until now proven right, and I think that the same thing will go into Q1 '06.

As far as the Suezmaxes is concerned, we're currently looking at upgrades in excess of $70,000 a day, maybe even 80 some of the ships. And that's before the Bosphorus delays have kicked in. We are experiencing today delays in the Bosphorus about three days. And just to remind you at last year it was -- the maximum that we have seen last year was about 11 to 12 days. So we're like only 20% there as far as delays are concerned. So '06 is a good question, of course and so as you know I don't like ever doing predictions but it's not looking bad to me. We would see what happens in '06, but we've heard that before, as we all know, and we within it would -- it wasn't really exactly the way it was described. Now, let's see, I think the Q1 will be good, then Q2, Q3 will be, I think, a bit too far for anyone to start talking about what's going to happen.

Fair enough. Okay. Thank you very much.

Our next question comes from Joe Gibney of Hibernia Southcoast Capital. Please state your question.

Good morning, gentlemen.

Hi, Joe.

Stamatios, just a couple of housekeeping questions on the borrowing fronts. SG&A had a few moving parts this quarter. I was wondering if you give us an expectation for run rate going forward?

For the immediate quarters, I would say around $2,000 per day.

Okay. For Q1?

Yes.

Okay. How about D&A run rate once you've achieved your full complement of 27 vessels?

The total depreciation expense, you said?

Yes.

For 2006, it's going to be a full year of the fleet. The total depreciation expense will be approximately 63 -- $64 million.

Evangelos, just wanted to get some of your perspective on the current secondhand market. Obviously, TOP's been a pretty active player in terms of opportunistic acquisitions. So I want to get your take whether or not you still feel there are values to be held out there in the current secondhand market?

In the way -- the way things have moved in the past -- if you want, after the Katrina. Like I said before as we all know in the summer, I was pretty quiet, meaning that TOP Tankers was pretty quiet in terms of acquisitions. The reason for that was really because prices had remained the same if not even increased a bit over the summer months. But at the same time, we were experiencing a lower charter market, meaning that you could get lower, for example, five-year contracts for MRs or stuff like that which we at least have as a strategy. The post-Katrina period has been very good and we managed to do certain acquisitions like we said after that. And we have also managed to get some good contracts from -- for our ships after that pickup of the market. And now currently, prices are more or less where they were after the summer, and the rates are very firm. So I think that, yes, if somebody looks to the right place you might get a good investment opportunity.

Okay. Fair enough. And just following up on the use of cash question, as you look out, obviously stock buybacks were mentioned but still special dividends a possibility as we move out into '06?

That is always a possibility with us, because it is in our strategy to do so, whenever we feel that is right. If the question is more specific to the next couple of months, I wouldn't like to answer that now but it could well be that a share buyback might be a better option at this point in time instead of special dividends. But we'll have to see when the time comes.

Okay. Thank you, very much. I'll turn it back.

Thank you.

(Operator Instructions) Our next question is from Kevin Andrus from Founders Asset Management.

Hi, guys. Did you guys give any guidance for the fourth quarter? I was kind of on and off the call.

Well, we usually don't give guidance, no.

Okay.

We -- the only guidance we give are the averages that the fleet is running, which Evangelos explained before.

Fair enough. Okay.

Thank you.

Our next question is coming from Byron Yaiadam (ph). Please state your question.

Good morning, gentlemen.

Good morning.

Congratulation on a good quarter.

Thank you.

Do you -- up to this day, how many fleet do you have so far?

How many ships you said?

Yes.

Yes. We have -- we operate 27 ships, out of which 22 are owned and that includes of course the ones we're going to take delivery right, and five are leased.

Okay. All right. Thank you, sir.

Thank you.

Our next question is from James Zao (ph) of QVC (ph) Financial.

Good morning. I have a few questions. First one is basically, I look at the Suezmax fleet you have in the third quarter, it seems five of them is under time charter including profit sharing top of them is under spot market and do some basic and mathematics and it seems that I wonder what's the TCE earning for those Suezmax on the spot market average during the third quarter?

Yes. The spot rate for the - you're referring to the third quarter right?

Yes, third quarter.

Yes. The spot was approximately 24,000.

I see.

And the vessels on the time charter were approximately 29,500.

I see. So basically I just want to go into a little bit more details. I remember from the presentation you have in the last quarter and the announcement you made during the quarter, it seemed that three of those vessels under time charter right now have a floor reached $28,000 and another one, floor test (ph) had $37,000 and the Priceless has $38,100 is that correct?

I think you may be mixing up the ones which are profit sharing and the ones which are without profit-sharing. So the 28 is the floor, and then we have we took time to getting 100% up to $35,000 and then we're splitting 50/50 above that.

Yes.

So this is for three ships. And then we also have the one, which is to Hyundai for five years, which is on an average of $36,000 a day.

$36,000 a day.

36, yes.

Which ship is that? It's Priceless or --

It's the Faultless.

Faultless, okay.

Faultless, yes.

Okay. And the last one, the Priceless is how much is the time charter rate?

The Priceless is currently spot.

Spot, I see.

Yes.

Okay. And -- right. I mean recently I heard some people were saying that the Suezmax you bought from Fred Olsen (ph) and I think that if we -- I mean just heard some rumor saying that specifications -- I mean, specification, which is not -- I mean not preferred by some oil companies such as ExxonMobil. Is that correct or it's just a...

I would say that it would be exactly the opposite actually. These specific ships have been built to the Fred Olsen standards in one of the best shipyards in the world in England, one of the very few ships built in the 90s in England. The specification is very, very high. The quality is very, very high. And the maintenance standards that Fred Olsen was running the ships are very, very high. And maybe, if somebody doesn't believe what I am saying. We can -- the ship has been approved -- had been approved by many, many, oil majors, all of them over the life. So I would say , the opposite.

Okay.

Including, of course, including, of course, ExxonMobil, guys.

Okay. I see, yes. The last question I have is about the non-cash compensation. And I noticed this quarter, you have about more than 3 million -- I mean more than $3 million into your -- on your income statement, which is non-cash compensation. So could such as give me more details about that such as, going forward, how much do you expect every quarter -- what's the number of non-cash compensation?

Well, there is no actual policy on that. But we're trying to have some provision in our financial statements just so that we don't have a very increased G&A expense at the end of the year. So we're trying to smooth out the expense over the period of a year. Now, we expect going forward, I would say, approximately anywhere between $500 and $700 per day on a quarterly basis.

$500 to $700 per day?

Yes, depending on the number of available days, of course and all that as the total expense of the fleet -- the average daily expense is reduced.

I see. So, I remember that you just mentioned, going forward you expect the G&A to be about $2,000 per day. Does that includes the 500 and $700 per day for the non-cash compensation?

No, that is not included in the G&A. No.

I see. So, including this, totally will be 2.5 to 2.7.

I would say between 2.3 and 2.5.

2.3 and 2.5. Okay. Yes, that's my question. Thanks.

Thank you, welcome.

Gentlemen, there are no questions at this time. And I would like to turn the floor back over to Mr. Tom Jackson for any closing comments.

Thank you, David. That completes the Q&A session for today. Thank you, ladies and gentlemen, for participating in this call. We look forward to talking to you again and sharing our continuing progress on our next quarter quarterly conference call. Thank you, and have a good day. Ladies and gentleman, you may now disconnect your lines.