Top Ships Inc (TOPS) 2006 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the TOP Tankers Incorporated second quarter results conference call.

[OPERATOR INSTRUCTIONS]

I'd now like to turn it over to your host, Mr. Michael Mason. Thank you.

Thank you. Good morning and welcome to TOP Tankers results conference call for the second quarter ended June 30, 2006. As mentioned by the operator, I'm Michael Mason of Allen & Caron, investor relations.

Before we start this call there are a couple of items I'd like to cover. Many of you received a copy of the press release announcing the company's results for its second quarter 2006. It was released this morning at 7:35 a.m. and was covered by Dow Jones at 7:35 a.m. Eastern. If you did not receive a copy of the press release, it is posted in the client section of our website at www.allencaron.com or you may call our office in New York at 212-691-8087 and we will email it to you right away. It is also posted on Yahoo! Finance.

This call is being broadcast live over the internet at www.toptankers.com and Precision IR's website -- webcast site at www.investorcalendar.com. The internet replay will be available shortly after the end of this call and will continue for seven days. In addition, a telephonic replay of the conference call will be available for seven days by calling 877-660-6853 from the U.S. and Canada or 201-612-7415 from outside the U.S. and Canada. Enter account number 286 and conference ID number 209180.

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

Good afternoon. Thank you very much, 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 earning conference call in respect to the second quarter and first half 2006 financial 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 of the 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 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 second quarter and first half 2006 as presented. And the Board of Directors, in the meeting held this morning, 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 and first half ended June 30, 2006. 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 second quarter of 2006 we had a net loss of 4.911 million, or $0.17 per share, compared with a net income of 13.552 million, or $0.49 per share, for the second quarter of 2005. Voyage revenues for the quarter were 69.857 million compared to 56.329 million in the second quarter of 2005. For the first half of 2006, we had a net income of 25.493 million, or $0.86 per share, compared with a net income of 32.673 million, or $1.17 per share, for the first half of 2005. Voyage revenues for the six month period were 171.603 million compared to 103.62 million recorded in the first half of 2005.

As we discussed in the first quarter 2006 conference call, we brought forward our dry-docking schedule into the summer months in order to take advantage of the anticipated slower charter market. However, the freight market so far has been exceptionally strong and our dry docks have lasted longer than expected, due mostly to significant delays in the Far Eastern shipyards. While there remains a degree of uncertainty regarding the exact date of completion for specific vessels, we expect to be able to enjoy the benefit of our full fleet's availability throughout the winter period, which is traditionally the strongest period of the year.

During the second quarter we sold 3,053,900 shares of common stock in at-the-market offerings at an average price of $7.30 per share. Such sales, together with the continuing positive cash flow from operations, further increased our cash position to more than 90 million. In addition, our Board of Directors has approved our sale of up to an additional 5 million shares under this program, out of which 453,900 shares were sold during the second quarter. Sales under this program may or may not take place, depending on our assessment of the market and other circumstances.

Regarding the recent SEC informal inquiry, which we chose to disclose in a public filing, we have provided all the required data to the U.S. Securities and Exchange Commission. Such inquiries are not uncommon amongst listed companies and are not always disclosed by the recipients as was done by our company.

During the second quarter 2006, seven of our Suezmax tankers operated in the spot market, earning on average $40,314 per vessel per day on a time charter equivalent basis. As of the date of this release, 58% of our spot Suezmax sales have been fixed for employment at an average daily time charter equivalent of 41,700.

During the second quarter of 2006, including the profit sharing allocated to us from profit sharing agreements, the Handymax fleet earned, on average, $18,683 per vessel per day on a time charter equivalent basis. As of the date of this release, our Handymax Fleet for the third quarter of 2006 has been fixed for 40% of its operating days at an average daily time charter equivalent of 16,5000.

I would like now to hand over the call to Stamatis to discuss the financial details.

Thank you, Evangelos. Good morning, ladies and gentlemen.

For the second quarter of '06, we had a net loss of 4.9 million, or $0.17 per share, compared to a net income of 13.6 million, or $0.49 per share, for the second quarter of '05. EBITDA for the quarter was 10.2 million compared with 33.1 million for the second quarter of '05. Voyage revenues for the quarter were 69.9 million compared to 56.3 million for the second quarter of '05.

For the first half of '06, we had a net income of 25.5 million, or $0.86 per share, compared to a net income of 32.7 million, or $1.17 per share, for the first half of '05. EBITDA for the first half of '06 was 66 million compared with 62.8 million for the same period last year. Voyage revenues were 171.6 million compared to 103.6 million for the first half of '05.

As of June 30, 2006 we had a total indebtedness on the senior secured credit facilities of $303 million with the Royal Bank of Scotland and HSH Nordbank maturing in 2015 and 2013 respectively. On June 30, our total cash position was 98.3 million, our debt to cap ratio was 59.9% and our net debt to cap ratio was 42%.

On that note I would like to hand the call back to Tom Jackson.

Thank you, Stamatis. I would now like to pass the call back to the operator for the Q&A session.

Thank you, Mr. Jackson. [OPERATOR INSTRUCTIONS]

Our first question comes from Natasha Boyden from Cantor Fitzgerald. Please proceed with your question.

Thank you, operator. Good morning, gentlemen. I just wanted to start with a general question. the third quarter's been very strong in terms of rates, much stronger than I think everybody anticipated. Evangelos, can we get your kind of thoughts on what you think is driving this, particularly in the Suezmax market?

You're talking about third quarter, right?

Yes.

Yes. First of all, I think that the second quarter was also a lot better than expected and we also did, I think, just slightly better than the second quarter of last year, which was supposedly the best year ever in tankers. So just a comment on the forecast. If you remember, we discussed that back in 2005 at the end of the year when everybody thought that 2006 would be a very bad year, et cetera. Now the third quarter is even better than the second one, that is true, although its' supposedly traditionally, if you want, the weakest quarter of the year.

What is driving it, good question. Continuous demands plus maybe a bit of help from the -- from the problems that we've -- that they have down in the Middle East and the east Med maybe has contributed to that. So, as I've said many times before, the -- on other calls, the world is in great imbalance of oil supply and very small things can bring -- can worsen, if you want, the situation. For example, Katrina and now we have maybe the Israel/Lebanon war down there, which just started a couple of weeks ago.

Okay. Also wanted to just touch on your program of selling shares here. You've only sold about 3 million now and you do have another 5 million. Can you just maybe clarify why you would sell a number of shares after paying out a large dividend? Do you intend to use that cash to look to buy other vessels or is there another reason there?

The main difference between the dividend -- the timing of the dividend and the timing of the selling of the shares is the different evaluation of both of the shares, right? The dividend was given at a time when the share was, I think, was about 0.6 of NAV, 60% of NAV and the average is about 85% on the selling shares. So, from our point of view, there's a significant difference in timing. What I'm trying to say is that different times, different values, different strategies, right?

Now to the last part of your question as to what's going to happen to that cash; nothing has been decided yet. We think it is, or it was not a bad evaluation when we did the majority of those sales and we think we sold it at a good level. Don't forget also that the sale/leaseback took place after that so it was a very different company.

Okay, and then Stamatios if could just get your -- if you could just clarify for us how many dry docking days you anticipate in the third quarter? I cannot remember if you mentioned that on the call in your prepared remarks.

Yes. We expect to have approximately 230 to 240 Seuzmax dry docking days and another 100 days for the Handymaxes. So the total is going to be something like 330 of higher days for dry dockings.

You mentioned in the release that there have been some delays at the shipyard. Do you think right now that those vessels will be back in the fleet in time for the fourth quarter boom, as it were?

Yes they will. I did mention that they were some delays, especially in the Chinese yards and the Palestine yards. The reason for those is there is a great overbooking of these shipyards and many; many ship owners are facing the same problems. Yes, we think that we'll be -- that all the fleet but one ship will be gone until October and the last ship will be ready probably at the end of October. So I think that we will be there for when the winter really starts, which is October or November.

Okay, great. Thank you very much.

Okay.

[OPERATOR INSTRUCTIONS] Our next question comes from Mr. [David Shapiro]with Aegis Financial. Please proceed.

Hello?

Yes, hi.

I just want to go over some of the -- I guess I wanted to inquire about the rising operating costs at the Company and try to see if we can go over the discrepancies between what you had on your sale/leaseback presentations slide a few months ago versus what we're seeing now come out of the financials. First on the operating cost side, you know, it seems like we're up a good 15% roughly from what you guys were guiding back at that time. Is there any explanation for that?

Well, at the time of the sale and leaseback we provided data for what to expect in the next five year period as far as operating expense are concerned. Don't forget that right now we're doing extensive dry-docking and repairs on our vessels, which we believe is going to bring the vessels to a great condition and will further decrease the operating expenses in the future so we can have an average of $6500 to $7000 for the Seuzmax and around $5000 for the Handimax. So basically we are experiencing some increased operating expenses now but this is just because we have a very heavy dry-docking and repairs schedule in 2006.

So in that operating expense line the dry-docking expenses are flowing in?

No, the expenses are a separate thing but some costs that are associated with repairs escape the operating expenses.

Okay. Then onto the G&A. We're running somewhere now around $1800 per vessel and, of course, you were guiding at $1500 and I'm talking about excluding the one-time compensation that you disclosed in the press release. I just want to get your thoughts on that and where you see that going forward?

You should use as a run rate $1500 for G&A. The second quarter was a little bit higher because we had a lot of promotional expenses for Macedonia, you know, the exhibit here in Greece. We had also higher expenses for the yearly -- for the annual report and, you know, certain one-off expenses with the SOX consultants and all these things have hit the second quarter.

Okay, and then the lease payments finally. Once again we were running -- you guys were forecasting about $9900 if I took the blended rate. Now we're closer to $11,800 for the blended leasing rate per day for the vessels that you're chartering in. Is there some sort of profit sharing in the lease or is there some sort of step up every year or what's going on there?

No, there's no profit sharing or step up whatsoever. The 2006 number was for three quarters because most of the leaseback started in April. So we don't have lease payments for the first quarter of '06 and from'07 thereafter then you have the correct blended average of $11,500, which you just mentioned.

So going forward we're at $11,500?

Yes, it's approximately $120 million per year for the total -- as a total lease payment.

Okay, can you break it out between the Seuz and the Handi's?

Yes, if you'll give me one second.

[OPERATOR INSTRUCTIONS]

Operator, I think we're in the middle of a question here.

I do apologize.

David are you still there? Hello, David.

I've been cut off.

Okay, I can hear you now.

Hello, yes.

Yes, okay. So the lease payment amortization for the Seuzmark is going to be something like $16,600 per day and for the Handimax it's 7.8-- no sorry, $7,900 per day.

Okay, 16.6 and 7.9

Right.

Okay, and finally just two quick bookkeeping questions. On the other assets can we get a -- what's the seller's credit in the restricted cash now out of that category?

The seller's credits present value right now is at $41.5 million and restricted cash is $13.5.

And that restricted cash is for your holding in lieu of debt payments?

It's actually not restricted. I mean there's no restriction whatsoever from the banks but we also believe that since the banks say that we should have $500,000 at least per vessel minimum liquidity, that's why it's been represented as restricted cash. So it's basically bank covenant to have $500,000 per ship under management as the minimum liquidity.

Okay and then the break out between the two lines. What's the principle balance for each line at this point?

Right now?

That's right.

As I said, it's $13.5 restricted cash and $41.5 the present value of the seller's credit.

No, no I mean on the debt side. I'm sorry, the principle balance for each line of debt that you have?

Oh, we have $158 million outstanding with RBS and $144.5 with HSH.

Okay, thank you gentlemen.

Thank you.

Mr. Jackson. There are no further questions at this time. Do you have any closing comments?

Thank you operator. That completes the q and 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 quarterly conference call. Thank you and have a good day. Ladies and gentlemen you may now disconnect your lines.