Top Ships Inc (TOPS) 2007 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the TOP Tankers' Second Quarter 2007 Results Conference Call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Michael Mason with Allen & Caron Investor Relations. Thank you, Mr. Mason. You may begin.

Thank you. Good morning and welcome to TOP Tankers' Results Conference Call for the second quarter ended June 30, 2007. As mentioned by [Claudia], I'm Michael Mason of Allen & Caron Investor Relations.

Before we start this call, there are a couple of items I would like to cover. Many of you received a copy of the press release announcing the Company's results for its second quarter 2007. It was released this morning at 7:35 a.m. Eastern Time. 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 e-mail 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 or PrecisionIR's webcast site at www.InvestorCalendar.com. The Internet replay will be available shortly after the end of the 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 250238.

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.

Good afternoon, Michael. Thank you very much. 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 second quarter and first half 2007 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 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 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 2007 as presented, and the Board of Directors, in a 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. Stamatios 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 second quarter and first half ended June 30, 2007. Following the financial highlights, the call will move into a Q and 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 June 30, 2007, our net income was $5.8 million, or $0.18 per share, compared with a net loss of $6.8 million, or $0.24 per share for the second quarter 2006. The results for the second quarter 2007 and 2006 include net revenues of $910,000, or $0.03 per share, and $103,000, or $0.00 per share respectively of special items that were described in the appendix of our earnings release.

During the second quarter of 2007, we generated a significant increase in our results as compared to the second quarter of 2006. This increase was mainly driven by the improved market conditions, especially in the Suezmax sector. The average Suezmax daily spot rate on a TCE basis was $42,106 in the second quarter of 2007, as compared to $40,314 in the second quarter of 2006. In addition, our time charter agreements helped the overall Suezmax daily time charter equivalent rate to increase to $39,840 in the second quarter of 2007, as compared to $37,031 in the second quarter of 2006.

I would like to point out that a spot Suezmax average of $42,106 per vessel per day was one of the highest spot rates achieved in the Suezmax sector, despite the fact that we are operating a 50-year-old fleet, and other companies operate significantly younger fleets.

The increased utilization of our fleet. After the extensive upgrading works that took place in 2006, our overall fleet utilization increased to 91.8% in the second quarter of 2007, as compared to 86.4% in the second quarter of 2006. Especially in the Suezmax sector, the utilization rate increased to 90.6% in the second quarter of 2007, as compared to 75.4% in the second quarter of 2006.

The re-acquisition of four Suezmax vessels. While we will see the first full quarter effect from the re-acquisition of these vessels in the third quarter of the year, we expect the re-acquisition to contribute approximately $0.02 per share in this quarter and approximately $0.05 per quarter thereafter.

In addition, we issued a total of 4.3 million shares at an average net price of $6.84 per share, including 2.1 million shares to Mr. George Economou. We believe that the participation of such a prominent shipping investor constitutes a vote of confidence in our Company and our management.

Recently, we announced that we are entering in the dry bulk sector, which we believe is a market with very strong fundamentals. The vessels that we have agreed to acquire are all fixed at strong rates and are expected to generate significant cash flows and returns on our investment.

Consistent to our commitment to provide high quality vessel management services, we have undertaken through our wholly-owned vessel management subsidiary -- sorry -- TOP Tanker Management, Inc., the technical management of eleven vessels of our fleet and three more are scheduled to be added later this year. TOP Tanker Management, Inc. has built a management team with significant experience in operating large and diversified fleets of tankers and dry bulk carriers, and has expertise in all aspects of commercial, technical, management and financial areas of our business.

We have committed three vessels to carry the Greek flag, which is one of the highest esteemed registries in the shipping industry. One tanker, the M/T Stormless, has already completed its re-flagging in July, and two more will follow in the near future.

Additionally, we have initiated a process to employ well-trained Greek officers for our fleet. So far, we have hired 24 skilled seafarers for eleven of our vessels. We expect these officers to contribute significantly to the quality and efficient operations of our vessels. We believe that the above will increase the quality level of our management services and will reduce costs associated to third-party managers.

Finally, we will continue to monitor both markets for such accretive acquisitions with significant revenues and returns to our shareholders. Actually, we are currently negotiating another great dry bulk acquisition and, if it materializes, we expect to announce it very soon.

I'll pass you over to Stamatios, who will take you through the numbers now.

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

For the second quarter of 2007, our net income was $5.8 million, or $0.18 per share, compared with a net loss of $6.8 million, or $0.24 per share, for the second quarter of '06. The results for the second quarter of '07 include special items of $0.03 per share.

Adjusted EBITDA for the second quarter of '07 was $16.8 million, compared with $8.5 million for the second quarter of '06. Voyage revenues for the quarter of '07 were $75.3 million, compared to $69.9 million in the second quarter of '06.

As of June 30, 2007, our fleet size was 23 vessels, or 2.3 million dead-weight tons, as compared to 27 vessels, or 2.6 million dead-weight tons on June 30, 2006. In April, we sold the Suezmax Errorless, resulting a book gain of $2 million. Also in April, the lessor of the Invincible sold the vessel to a third-party, and we mutually terminated the bareboat charter. That became effective on the vessel's delivery in July, 2007.

In May 2007, we agreed to re-acquire four Suezmax tankers that we sold in 2006 in a sale and lease-back transaction, and to unwind the respective bareboat charters. The re-acquisition price was $208 million, and was financed by bank debt, the early redemption of the seller's credit, and existing cash balances. The vessels were delivered back to us in May '07.

In July 2007, we entered into agreements to acquire three dry bulk vessels, which are described in our earnings release. These vessels are scheduled to be delivered to us between September '07 and January '08.

In July, the lessors of the Restless and Victorious agreed to sell the vessels to a third party, and we mutually agreed to terminate the respective bareboat charters. The termination will become effective upon the vessels delivery to their new owners, expected to take place in the third quarter of '07.

During the second quarter, we had approximately 67% of our fleet's operating days on long-term employment contracts. As of June 30, 16 of our 23 tankers were on time charter contracts with an average term of over three years. All but four of the time charters include profit sharing agreements.

In May '07, we announced a new time charter contract with a major South American oil company for our Suezmax Flawless. The vessel earns $44,500 net per day for one year, and charters have the option to extend the contract for an additional year. That was one of the highest time charter rates achieved in '07 for the Suezmax sector.

During the second quarter of '07, seven of our Suezmax tankers operated in the spot market, earning on average $42,106 per vessel per day on a time charter equivalent basis. Again, that was one of the highest spot rates achieved in the Suezmax sector.

During the second quarter, five of our Suezmax tankers operated under time charter contracts, earning on average $35,831 per vessel per day on a time charter equivalent basis.

As of the date of this release, 53% of the spot operating days of our Suezmax fleet for the third quarter have been fixed at an average daily TCE of $30,000. Overall, 69% of our operating days for the Suezmax fleet have been fixed at an average daily TCE of $34,000 for the third quarter of '07.

All of our Handymax tankers operate under long-term employment agreements that provide for a base rate and additional profit sharing. During the second quarter of '07, including the profit sharing allocated to us, the Handymax fleet earned $21,600 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 '07 has been fixed for 44% of its operating days at a daily TCE of $20,000, including profit-sharing allocation.

As of June 30, 2007, our total debt under senior secured credit facilities was $348.6 million, with the Royal Bank of Scotland, HSH Nordbank, and DVB Bank maturing in 2015, 2013 and 2012 respectively.

In the second quarter of '07, we issued 3.5 million shares of common stock, for total net proceeds of $23.8 million. These securities were sold by Deutsche Bank through a combination of at-the-market sales and negotiated transactions. As of today, in 2007, we have issued 4.3 million shares of common stock for total net proceeds of approximately $29.4 million. These proceeds will be used to partially finance the dry bulk acquisitions.

As of June 30, our cash was $87 million, including the $50 million required by our covenants. As of today, our cash is approximately $80 million. On June 30, our debt-to-equity ratio was approximately 60%. Our current debt-to-equity ratio is approximately 61%, and our current net debt-to-equity ratio is approximately 52%.

On that note, back to Tom Jackson.

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

(OPERATOR INSTRUCTIONS). Jonathan Chappell, JP Morgan. Please state your question.

Thank you, and good afternoon, guys.

Hi, Jon.

Hi, Jon.

I was just wondering about the Restless and the Victorious, the circumstances surrounding that sale, and your agreement to mutually get rid of the bareboat charters. Did you just view that as an opportunity to continue to lower your break-even costs and remove some of the higher charter end expenses?

Of course. It's definitely what you said. And in addition, I may add that we are still more focusing, if you want, more on the seven-year bareboats that we have.

Um-hmm.

And that is really part of the strategy, part of the -- we bought in part, and we might sell out, and the renewal of the fleet, and all that. So, it is mainly reducing the costs, really. That's what it is.

Okay. And if I remember correctly, both of those ships underwent a pretty extensive dry dock in the last 12, 18 months.

Um-hmm.

And they're pretty expensive, as well. Is there anything from the buyer that could recompensate you for the funds used to dry dock these ships?

Actually, the cost of the dry dock will be expensive in the third quarter, but it will be netted off with the gain from the sale of the vessels two years ago. So, basically, we would have a positive P&L effect.

Okay. And Evangelos, it sounds like you're a little bit more optimistic about the dry bulk market, at least as far as the last fleet actions have shown. Is that the case? Do you feel the dry bulk market has better fundamentals and, more importantly, better returns versus asset prices than the tanker market does today?

This is a -- yes. First of all, I might just refresh a few memories here. We had done the [Nauticals] fleet in 2005. We were close to doing that, if you remember that. So, we are looking into going into the dry bulk for years now. That was the one thing that we did. And back then, we had the General Motors and the down rating because of Ford, I think it was, the daily pricing, so we couldn't do that deal.

Um-hmm.

So, we didn't do the Nauticals fleet. Then, we looked at another fleet a year down the road from that. And there was a lot of hiccups then.

So, like I said, we finally made it, and we're finally in the dry with those three first vessels that we bought. We're looking at further vessels to continue the increase of the fleet because we get anything larger scale, if you want. So, we're going to have to build a larger scale. We will try, of course, doing that faster rather than slower.

And coming back to the last part of your question, the fundamentals, yes, I strongly believe that the fundamentals, as least as much forward as we can look, as forward a look as you want at the industry, I think that we're going to have very strong fundamentals, at least for the next two years, the way it looks today. And then, of course, we'll have to see what we will do from there.

So, I think we'll continue doing selective deals. Some of them might have charters attached. Some of them might be spot because we also like spot vessels, especially in these markets.

Um-hmm. Would it be fair to say you're not really looking at tankers, though, at these prices right now? Or would you continue, obviously, to be opportunistic on that front, as well?

I think, and I always thought, and that was what I was saying since 2004, that it's always better to have two legs rather than one. And this company has been always -- the strategy, if you want, in terms of banks, the charters. Anywhere you look at it, we're always trying to have two or three legs rather than one.

The only thing we want to have, if you want, having two different sectors of the tanker industry. So, we didn't have two different bigger sectors, but we had two smaller, if you want, the products and the Suezmax within the tanker industry.

Right, right.

So, that's now complete. So, I won't say that it takes the focus out of the tankers, but I would say that, technically, for the time being, just because we have to set priorities and because money is not endless, we have to look into increasing our dry fleet, bringing it to a good size, and then maybe looking into further tankers, as well. We do have the new buildings that are coming at the beginning of '09, as you know--.

--Right--.

--Which is not that far away anymore. But, we are placed very well with those ships because we have ordered them, like six, seven, eight million loads, and what it will be worth with the turning of the year, with six pieces there. So, we have something coming anyway in the tanker side. So, we're looking more into the dry side at present.

Okay. And then, one last question.

Yes.

The debt-to-cap 60%, what level are you comfortable with? And as more dry bulk, potential acquisitions come to fruition, how do you envision financing those assets?

Yes, the net debt is about 62%, the net debt which is, I think, usually a little bit more important for me. The 60% is -- even if it was 60% net debt, I think we would be at a level which a company could be comfortable with.

To answer your answer of -- yes. Well, especially, (inaudible) thinking about the time charter strategy that we have, right? Because that, of course, gives you a lot more comfort in the case of the market down turn.

Now, I think that we're going to move on with -- well, I mean, we're looking at all possible ways here, of course. But, I think that, definitely, some kind of an offering will come at some point in time. And it really depends of how acquisitions and when they will come. But, it might be needed. It might not be needed. So, it really depends on the timing, right?

Um-hmm.

And of course, all the deals that we are looking into are deals that, even if there is an offering, are going to be very plentiful for the shareholders, like all the previous ones we have done. So, it is a question that I can answer you when we get to that point, and when we have the deal that we need to finance.

Okay. Thanks, Evangelos.

Okay, a pleasure.

(OPERATOR INSTRUCTIONS). Natasha Boyden, Cantor Fitzgerald.

Thank you, operator. Good morning, gentlemen.

Hi, Natasha.

Hi, Natasha.

Hi. Evangelos, in terms of the dry bulk fleet, do you have a number in mind as to how large you'd like to go? Would you like to be in figures--?

--How large in terms of number of vessels, or buy new vessels?

Yes, the number of vessels, in terms of do you envision it getting bigger than the tanker fleets or--?

Listen, the name of the game for us, at least, has always been growth. Now, of course, the answer to your question is what I'm going to find.

Um-hmm.

If we're finding a fleet of business and deals that make sense with charters without deliveries that make sense, sizes, conditions of vessels that make sense, then the answer would be as much as collectively can. If we cannot, then we might even stop at five or six or seven. It depends of how good the deal is, really, not how big the deal will become, or how big the fleet will become.

Okay, fair enough. And then, the three you've got, if I remember rightly, the three dry bulks that's coming in are on time charter--.

--Um-hmm.

And I know that, obviously, your tankers have primarily been under time charter. Do you see that you'll continue that strategy? Or do you think you'll have some more spot exposure on the dry bulks, given where rates are at the moment?

I'll tell you, I think that the strategy we have going now along for years, I was going along for years, even before I went public, which is the balance employment strategy. I think that has proven to be correct in the tankers. We didn't miss out of the high, high markets, and we don't get hit so much on the medium to low markets which we're seeing today on the Suezmax, for example.

Um-hmm.

So, the balance strategy I think is something that we would like to implement, if possible, always in the dry side, as well, which will mean having some of them fixed, which always expected to have the first ships fixed like we have done in the three first ships, our fixed high rates, and at reasonable durations. And then, maybe the next ones that will follow should be maybe spot or part of spot, part of fixed. So, I think balance strategy is the answer to your question.

Okay, great. And down the road, if the dry bulk, as part of your fleet, does get fairly sizeable, do you intend to keep them together? Or do you envision a spin-off?

That's a good question. Spin-offs have been very popular lately--.

--Um-hmm--.

--Or last year. So, it really is a matter of numbers. If it makes more sense for the shareholders to spin-off, you spin-off. If it doesn't, you don't.

Um-hmm.

So, we are not there yet to think about spin-offs. But, I think that, definitely, it's just a simple calculation of if it makes more sense or not for the shareholders. So, I will leave that to the numbers.

Okay. So, it's definitely an option there.

Yes, positive.

And then, just moving on to the Suezmax side of it, when you bought back some of the leaseback Suezmaxes, obviously, it was pretty good for your charter end rate. Do you expect to be able to repurchase any more of them? Are there opportunities there right now, or are you finding it difficult?

It's not necessarily -- repurchasing is not the name of the game. The name of the game is making purchases or repurchases that make sense. Those four ships made a lot of sense because, first of all, they were about the same price that we sold them for, plus what we made last year on them because we made money. So, that was one thing. The other thing is that those specific ships would have been [sorry] for another five-and-a-half years or so because they were the seven-year leases.

So, to answer the question, there is one more ship that is for -- one was Suezmax, to be specific, that has been for the seven-year lease. So, that, I think, would make sense, and we're looking at that, as well. And there are other Suezmaxes that still have three and change to go, years, which are -- for the time being, we are very happy with. So, the market really shows the way, if you want, on this.

Um-hmm.

So, that's why they made more sense because they were the seven-year ships, and that made it more important for us, if you want.

Okay, great. And Stamatios, lastly, can you just quickly give us a rundown of your dry docking schedule for the rest of '07 and '08? Is that possible?

Yes, absolutely. We have two more Suezmaxes for this year. We're not sure yet if they're going to be in the third quarter or the fourth quarter, depending on the position on the vessels' end. And both of them have time charters, so we wait to see when the charters are going to delivery the ships. So, most likely, they will happen in the fourth quarter, as it seems.

We calculate approximately $3 million per vessel for these two ships as a cost for the dry dock. And we have one more Handymax -- actually, two more Handymax spaces already this year that are most likely going to take place September and October.

Great. And the Suezmax dry dockings, are those just the regular dry dockings, or are they special?

No, special surveys.

Okay.

But, we don't anticipate any problems because one of the two ships is in great condition, and the other underwent a very good intermediate survey two years ago.

Um-hmm.

So, we're not expecting any major work--.

--Work--.

--Yes, on these ships.

Okay, great. Well, thank you very much, gentlemen.

Thank you.

Thank you, Natasha.

Bye-bye.

(OPERATOR INSTRUCTIONS). Gentlemen, there are no further questions at this time. I'd like to turn the floor back over to management for any closing comments.

Thank you, operator. And 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.