Top Ships Inc (TOPS) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the TOP Tankers Incorporated Fourth Quarter Results Conference Call. [OPERATORS INSTRUCTIONS].

It's now my pleasure to introduce your host, Mr. Michael Mason. Thank you Mr. Mason, you may now begin.

Good morning and welcome to the TOP Tankers conference call to review the company's financial results for its fourth quarter and 2005 year-ended December 31, 2005, as mentioned by the operator, I'm Michael Mason of Allen and Caron Investor Relations. Before we start this call, there's a couple of items I would like to cover. Many of you received the copy of the press release announcing the Company's financial results. It was released this morning at 7 a.m. eastern and was covered by Dow Jones also at 7 a.m. eastern. If you did not receive a copy of the press release that was posted in the client section of our web site, at www.AllenCaron.com, you may call our office in New York at 212-691-8087 and we will e-mail it to you right away. It's also posted on Yahoo Financing

In addition, this call is being recorded and a telephonic replay of the conference call will be available for seven days by dialing 877-660-6853 from the U.S. and Canada, or by dialing 1-201-612-7415 from outside the U.S. and Canada. Enter account number 286 and the conference ID number, 193-629. This call is being broadcast live over the internet and may be accessed on the Company's web site at www.TOPTankers.com or by going to Precision IR's Webcast site at www.vcall.com. The Internet replay will be available shortly after the end of the call for seven days.

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

Thank you, Michael. Good morning, ladies and gentlemen. I'm 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, with respect to the fourth quarter and the full year 2005 results.

Before we begin, let me call 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 of those statements here today, other than historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and is actually defined in the Private Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties and are subject to change at anytime 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 of the fourth quarter and the full year 2005 as presented. The board of directors in the meeting held last Thursday, approved the accounts as presented.

With me today for our conference call are Mr. Evangelos Pistiolis, President and Chief Executive Officer and Mr. Stamatios Tsantanis, Chief Financial Officer. Mr. Pistiolis will provide you with details of Top Tankers operations, activities and general expectations. Furthermore, he will provide you with an overall perspective of the international tanker market, together with its perceived outlook. Mr. Tsantanis will comment on the financial results of TOP Tankers Inc., for the quarter ended December 31, and the full year 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.

Good morning, ladies and gentlemen. For the fourth quarter 2005, our net income was $28.1 million, or $1.00 per share. Compared with net income of $19.3 million or $ 0.80 per share for the fourth quarter of 2004. Net income for the fourth quarter includes $3.7 million or $0.13 per share of specific items that are described in our press release. Excluding the specific items, our EPS would be $1.13.

For the fiscal year of 2005, our net income was $68.7 million or $2.46 per share compared to $32.8 million or $2.54 per share for previous year. Again, EPS for the year includes $0.26 for specific items and late delivery fees that were not included in our P&L. Excluding these items our 2005 EPS would be $2.72 per share. I'm very pleased to announce a stronger -- the strongest financial results of our company to date. Once again, the Cassandra have predicted a global tanker depression for 2005, were wrong. The strong fundamentals of the tanker sector and the ever increasing demand of our services overcame any pessimistic outlook for the year.

We substantially increased our fleet in 2005 by adding 1.6 million dead weight and became one of the largest Suezmax and Handymax operators in the world. We have also paid dividends of $1.30 per share, out of which $0.21 per share related to earnings of 2004, and $1.09 per share related to earnings of 2005, yielding approximately 8.5% at our current stock price.

During the fourth quarter 2005, we had approximately 74% of our fleet operating days and long-term employment contracts. Nineteen of our 27 tankers are on time charters contracts with a [nautilus] term of over three years. All but two of the time charters include profit sharing agreements. We have secured approximately 70% of the estimated operating dates for 2006 and the time charter contracts. At the same time, the eight Suezmax operating in the spot market, together with the profit sharing component of the time charter contracts exposed approximately 60% of our company's estimated operating days for 2006, to spot rates which may be potentially even higher.

During the fourth quarter of 2005, eight of our Suezmax tankers operating in this spot market earning an average of $61,400 per vessel, per day on a time charter equivalent basis. [inaudible] It's average. It's at highest among our reported peers, even though our fleet is not as young and our history in the market is not as long. As of today, we have 68% of our Suezmax spot operating days for the first quarter 2006. As an average daily time charter equivalent of 65,000.

Our Suezmax in total, including spot time charter and profit sharing are 64 to 84% for the first quarters operating days and an average daily time charter equivalent of 54,000. All of our Handymax tankers operate on the long-term employment agreements with Glenco [inaudible] but provide for [inaudible] and additional profit sharing. During the fourth quarter of 2005, including the profit sharing allocated to us from these profit sharing agreements, the Handymax fleet earned on average $22.3 thousand per day per vessel on a time trial basis.

As of today, our Handymax fleet for the third quarter, 2006, has been fixed for 70% of its operating date as an average daily time charter equivalent of 21,000. Once again, I would like to stress that our profit sharing contracts set on a quarterly basis and the generated profit is presented in the financial statement for each accounting period. On that note, I would like to hand the call over to Stamatios which will discuss the financial details with you.

Thank you. For the fourth quarter 2005, our net income was $28.1 million, or $1.00 per share, increased 46% compared with the net income of $19.3 million or $0.80 per share for the fourth quarter of '04.

Our fourth quarter earnings include $3.7 million or $0.13 per share for specific items described in the press release. Excluding the specific items our EPS would be $51.8 million or $1.15 per share. EBITDA for the fourth quarter was $49 million compared to $28.3 million for the fourth quarter of '04. Earnings for the quarter were $90.6 million, compared to $47.8 million in the fourth quarter of the previous year.

For the fiscal year 2005, our net income was $68.7 million or $2.46 per share, compared to $32.8 million or $2.54 per share for the previous year. Again, net income for the year, includes $7.4 million, or $0.26 per share for specific items and late delivery fees that were not recorded in the P&L. Excluding special items are 2005 EPS was $2.72. EBITDA for 2005 was $140.1 million compared to $52.1 million for the previous year. Total revenue for the year was $244.2 million compared to $93.8 million for the previous year.

As was mentioned, we have secured approximately 70% of our estimated operating days for '06, [inaudible] contracts. Considering the current Q1 averages for Suezmax and Handymax, and assuming only base rates [to see] revenue until the end of the year, we will generate $165 million revenues and $70 million of EBITDA for 2006. To further recognize the analysis, please refer to our presentation which is posted on our web site today.

As of December 31, 2005, we had a total debt of $569 million with debt-to-capital ratio of approximately 60.4%. Our cash position as of December 31 was $51 million. As of today, our total indebtedness is $567 million, our total cash position is $61 million, and our net debt to cap ratio is 54%. In addition we have $172 million from our revolving credit facility. On January 23, 2006, we paid our fifth regular corporate dividend of 21% per share to shareholders of record as of January 17. On January 23, 2006, we paid our fifth regular corporate dividend of $0.21 per share to shareholders of record as of January 17.

On that note, I would like to turn the call back over to the operator for questions.

Thank you, sir. Ladies and gentlemen at this time, we will conducting a question-and-answer session. [OPERATOR INSTRUCTIONS] With that, our first question is coming from Natasha Boyden of Cantor Fitzgerald. Please proceed with your question or comment.

Thank you, operator. Good morning, gentlemen.

Good morning.

Great rates on the Suezmax fleet and as you said, the highest out the public pay group. You did note your fleet is clearly not the youngest. Can you tell us how you were able to do that, to achieve such impressive rates?

Yes, I think the first time that we are beating everybody else, but we were always -- I don't really remember, but I think we were always top three between our reported peers, but I think it's really about hard work. Nothing much more than that. We didn't have any aces up our sleeve or anything like that. Like I said, our fleet is a lot older than most of them, if not all of them. And as you remember, some of these companies have also -- actually one of these companies mentioned that it's not only old, but it's also not a good quality fleet, something like that. So I think that's really the answer to everybody.

I was going to say, I think with those ranges, it is the best thing. Clearly it is, if you are achieving those rates.

Yes.

Is it that you don't have any exposure to anyone particular geographic region? I know your vessels tend to operate everywhere around the world, and we don't have any particular focus. Would that have something to do with being able to achieve such high rate as well?

I don't think so because where you operate is really much of luck in one sense. If you get focused into the west and the east might pick up or vice versa, so you might be unlucky. Definitely a bit of luck is needed in achieving high rates. On the other hand, as much as you can work hard to try to minimize your ballanced voyage, and that's what we have been -- that's what we have been doing very hard here. I think it's more into getting -- into getting the balanced state down than actually ,achieving five points more.

Speaking of different regions, can you sort of discuss whether or not the conflict in Nigeria, is having any real impact on your business, especially given that you have a [inaudible]

Yes, we concentrate a lot on the West Africa, U.S. Gulf trade. And it does have an impact on the market overall, actually, not only for us. We have seen the Suezmax market drop over the past, I think, week, week and a half. Although, that's going to be only a temporary drop, which will eventually result into increasing rates, these are areas that now until the ships leave the West Africa area and go into Persian Gulf, or Lybia, or the Black Sea to pick up the oil they can't pick up in Nigeria, we have a bit of a surplus of ships in that area, but the good thing about the whole story is that the increases at the end of the day because as we all know, the U.S. will need to import that oil, no matter where it comes from, and since they can't get it from West Africa and since Venezuela is pretty much 100% output, they will have to look at other places. Any other place beside Venezuela is a lot further away than the 14 days needed from West Africa to the U.S. Gulf. So the results at the end of the day is going to be positive.

Okay. Great. And then I do have one other question. I will actually let somebody else go first and then come back, but, you know, your stock is trading at a real discount to the peer group. A significant discount. And I'm sure you noticed that. Can you discuss any strategies that you may implement to try to stimulate the share price? Have you thought about share buy backs? I know you had a special dividend. A lot of your peers are actually implementing share repurchase programs. I wanted to get your thoughts on that.

Yes, the way we can -- what we -- the way that the company can stimulate its stock are well-known, so I'm not going to go through that. I'm sure some of the guys on the call know that better than I do. But I can assure you that you are working on two possible rates and I'm -- I can't really talk more about that at this point in time. But I hope we are going to be able to report something -- something nice in a couple of week's time so three weeks or so. It's not such a big discount compared to the peers, I think the whole sector is a negative big discount. You know, I'm understanding myself very well, because I said that many times before. On the other hand, the answer that I was always getting was that, everybody is afraid of '06. Before that everybody was afraid of '04, '05, and '06, and '06, as we just testified, and as in the presentation, is showing you that '06 is almost as good as Q4 '05, so I mean -- at least for our company. So -- and I'm sure that the others are also doing very well. Even into Q1 '06. So I would think that Q1 looks as bad as not anywhere near as bad everyone thought it would look.

Okay. Great. Thank you very much.

Thank you. Your next question is coming from Gary Wagner. Please proceed with your question or comment.

Yes, congratulations, gentlemen.

Thank you.

I'm a private investor, and I have a pretty large holding in your company. I have a question regarding your vessel operating expenses. I noticed that as a percentage of income in the fourth quarter, it went to 21.77%, whereas in the fourth quarter of 2004, it was 15.18%. Do you expect this level of operating expenses to continue through 2006? Or do you expect to lower it.

The main reason for such an increase is we have more Suezmax in our fleet than we've had last year. So as you know, the Suezmax's usually have a higher operating expense than the Handymax's. So last year we had a lower average of Suezmax and this year we've had significantly higher and that's why you've seen such an increase.

That partially answers the questions. We all know that the Suezmax's have a higher day rate than the Handymax's. I don't really understand why the operating expenses are becoming such a much larger portion of your revenue, based on that idea.

Well, that's -- that's one part of the question, and secondly that we had higher than anticipated expenses for Suezmax because of heavy dry dock scheduling in the second and the fourth quarter of 2005. That will continue to happen in 2006 as well, because we have, again, you know, higher dry docking schedule and in 2007, it's expected to go down. So I hope that answers your question.

Yes, I think that does. Second question I have is regarding the shelf registration that you issued last summer. Do you have any plans at this time to do anything about that? Are you going to issue new stock? Are you going to go after more acquisitions of more ships or just what are your plans?

Like I said before to Natasha, as far as the plan related to the stock price, I won't comment at this point in time, but if I may answer directly to the shelf there's no intention to use that shelf in the -- in the foreseeable future, at least there are no plans at present, no.

All right. Thank you. That answers my questions.

Yes, thank you.

Thank you. Our next question is coming from Mr. Seth Lehman of Financial Guaranty Insurance. Please proceed with your question or comment.

First congratulations on your results for '05.

Thank.

You, I guess in the past year, 18 months, your fleet growth has been pretty impressive, adding more tankers. I wanted to hear from you of whether you think you are at optimal number of tankers at this point, Suezmax's and Handymax's and whether you are contemplating being more involved in the BLTC market.

As you probably would have noticed by now that the TOP Tankers has really focused on two sizes. The reason for that is that, you know, anybody can become as large as they can become, and it's better for -- at least that's what I think to focus on certain sizes, so you can become someone to become larger in each specific sectors of the tanker industry. So we are now like, I think fourth largest or third largest in Suezmax's, fourth largest and we are largest -- the largest operator in Handymax's, double hull Handymaxes. There's also a presentation on the web site and I think that is slide number seven, where you can see that ranking. So I guess that we have to say that part of the question is not at this point in time, unless there's really new things that would come up to us, a new contract of some kind of specific employment that we can do with these ships.. I think it will be on our schedule at this point in time.

Thank you. Thank you.

Thank you. Our final question is coming from David Abraham of DAC capital. Please proceed with your question or comment, sir.

Good morning. Looking at the EBITDA reconciliation down at the bottom of the press release?

Yes.

I can see EBITDA of just a hair under $49 million for the quarter ended December '05.

Yes.

Interest, obviously, doesn't pertain on the full $569 million, clearly does not pertain to the entire quarter and I also wonder if you can tell us generally what your spreads are on the bank debt and also what your free cash flow was for the fourth quarter.

Yes, absolutely. Sorry, can you repeat the question about EBITDA?

The EBITDA for the fourth quarter was approximately $49 million.

Right.

What is free cash flow?

Oh.

Because that will include whatever principal charges or other expenses you have that wouldn't be ordinarily included in EBITDA.

There was a cah flow statement also in the press release. You can see it written there. Do you want to do it right now.

Not in my copy of the press release.

It should be there.

Oh, I'm sorry. I'm sorry. I got it. I've got it. Yes.

About the spread now, we have -- spread now, we have an average spread of 87 to 88 basis points. Some of our debt, as we state in the press release has -- is fixed with the swap interest rates and the remaining is LIBOR plus the 88 basis point spread.

Okay. All right. So --

So on average, it's 88 basis points.

Okay. All right. I will spend some more time with the cash flow statement and if I have a question, I will catch you offline.

Okay. Yes, no problem.

Mr. Jackson, we have no further questions at this time.

Thank you, operator. 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 continuing progress on our next quarterly conference call. Thank you and have a good day. Ladies and gentlemen, you may now disconnect your lines.