Top Ships Inc (TOPS) 2008 Q1 法說會逐字稿

Greetings and welcome to the TOP Ships Inc. first-quarter 2008 results conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Michael Mason of Allen & Caron Investor Relations. Thank you, Mr. Mason. You may begin.

Thank you. Welcome to TOP Ships' results conference call for the first quarter ended March 31, 2008. I am Michael Mason of Allen & Caron Investor Relations.

Before we start the 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 first quarter 2008. 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 on 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.topships.org or the PrecisionIR 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, the telephonic replay of the conference call will be available for seven days by calling 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 286450. I would now like to turn the call over to Mr. Thomas Jackson, Chairman of the Board of Directors of TOP Ships. Good afternoon, Mr. Jackson.

Good afternoon, Michael. Thank you. Good morning, ladies and gentlemen. I am Tom Jackson, the Chairman of the Board of Directors of TOP Ships Inc. It is my pleasure to welcome you to TOP Ships' earnings conference call in respect to the first-quarter 2008 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 has reviewed and recommended to the Board the acceptance of the accounts for the first quarter of 2008 as presented and the Board of Directors in the meeting held today 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 Ships' 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 cover the financial results of TOP Ships Inc. for the quarter ended March 31, 2008. 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. In the third quarter of 2008, we had a net loss of $0.93 per share, including special items of $0.83 per share, consisting of cash and non-cash charges. The special cash charges we incurred were mainly a result of unplanned repairs on some of our vessels. Three of these vessels -- Faultless, Noiseless, Bertram -- which caused the majority of these unplanned cash expenses, were sold and delivered to the new owners during the first and early second quarters.

We expect to recover approximately $6.5 million from insurance underwriters during the second, third and fourth quarters of 2008 with respect to these and previous unexpected repairs that will significantly offset these charges. The special non-cash charges we incurred related mostly to the charge of fair value of swaps that was caused by the significant decrease in the (inaudible) days of the first quarter. All special items are described in the appendix of this earnings release.

Consistent with our strategy to operate the fleet with a balance of (inaudible) and in order to further reduce the spot market exposure, we concluded a number of significant time charter arrangements for our drybulk and tanker vessels.

Regarding the drybulk fleet, we have previously announced the time charter arrangements for the Cyclades and Astrale at $50,850 net per day for three years and $67,500 net per day for one year respectively. In addition, we have recently agreed to charter the Pepito for a deal of five years at a net daily rate of $38,950. Finally, we have agreed to extend the bareboat charter of the Voc Gallant after its current expiration in May 2009. The extended agreement will have an additional period of three years at the net daily bareboat rate of $23,580.

Regarding our tanker fleet, we have recently concluded chartering agreements with all six of our newbuilding (inaudible) tankers with three major charters. The new charter periods range between seven and ten years at daily rates between $14,300 and $14,550 on a bareboat basis. Since in bareboat agreements the charters are responsible for the operating maintenance and other significant expenses, we estimate that the daily rates for these bareboat charters to be in excess of $21,500 for the period on a time charter equivalent basis. We expect the newbuilding investment to generate approximately 20% return on equity and approximately 14% internal rate of return on a 10-year basis.

Finally, in the first quarter, we terminated one more leasing contract -- the Faultless and we are continuing our assets to unwind additional charters in contracts in order to further reduce our leasing expenditure.

As of March 31, 2008, we had a fleet under management of 23 vessels for 2.1 million deadweight as compared to 24 vessels or 2.5 million deadweight on March 31, 2007. In December 2007, we entered into an agreement to sell the Noiseless and in January 2008, we agreed to sell the Stainless and entered into a bareboat charter with the buyer until July 31, 2008. The vessel -- which is also the vessel delivery date. The bareboat (inaudible) that we receive will be deducted from the sales price.

During the first quarter of 2008, the Company had approximately 79% of the fleet's operating days on long-term employment contracts as of March 31, 2008. 17 of the Company's 23 vessels were on time charter contracts with an average term of over two years with all but nine of the time charters including profit sharing agreements.

During the first quarter of 2008, seven of our Suezmaxes operated in the spot market, earning on average $47,548 per vessel per day on a time charter equivalent basis and five of our Suezmax operated under time charter contracts earning on average $38,574 per vessel per day on a [PC] basis. Our current Suezmax boat average is $46,500 per vessel per day on a TCE basis for 74% of the Suezmax spot operating days in the second quarter. Seven of our handymax earned on average $18,350 per vessel per day on a TCE basis, including the profit-sharing allocated for our Company and one of our handymax operated in the spot market earning $[116,000] per day on a TCE basis. Our current handymax average is $20,400 per vessel per day on a TCE basis for 84% of the handymax operating days in the second quarter.

During the first quarter of 2008, all of our drybulk vessels operated under time charter contracts, earning an average $51,151 per vessel per day on a TCE basis, including the amortization for the fair value of time charter contracts of $15,842 per vessel per day.

And now I would like to pass you over to Stamatios to discuss the financials.

Thank you, Evangelos. Good morning, ladies and gentlemen. For the three months ended March 31, 2008, our net loss was $18.8 million or $0.93 per share compared to net income of $3 million or $0.28 per share for the first quarter of 2007. The results for the first quarter include the net charges of $16.7 million or $0.83 per share of special items that affected the Company's net results and that typically excluded the (inaudible). These items are explained in the appendix of this release.

For the first quarter of 2008, our operating loss was $2.4 million compared with operating income of $3.4 million for the first quarter of 2007. Our revenues were $72.6 million compared to $74 million recorded in the first quarter of 2007.

As of March 31, we had a total indebtedness under the senior secured debt facilities of $502 million, maturing through 2015. In December 2007 and April 2008, we raised $120 million of equity capital to fund our drybulk diversification and the newbuilding program. Like Evangelos explained earlier, all our drybulk vessels and our newbuildings have been chartered in long-term employment agreements that are expected to provide a secure stream of revenues.

The long-term employment agreements for the majority of our current tanker fleet in combination with significantly improved spot rates are expected to increase our tanker revenues. Therefore, we expect our working capital generation in combination with the existing cash balances and our recent equity offerings to be sufficient to cover our liquidity requirements for the next years. We are currently in the process of finalizing secured debt financing agreements for our newbuildings to be delivered in the first half of 2009.

On March 31, 2008, our debt-to-equity ratio was approximately 72.1% and pro forma in the second quarter of 2008, our net debt-to-equity ratio is expected at around 65%.

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

(OPERATOR INSTRUCTIONS). Jonathan Chappell, JPMorgan.

Thank you. Good afternoon. Regarding the special repairs on the Faultless and the Noiseless specifically, were those -- did those only come to light when you were shopping the assets or would they have had any special repairs even if they were going to stay in your operating fleet?

No, no, these were -- I am having to be more specific on the special repair description if you want. It was -- they were actually incidents, right? What is why we are going to recover them from the insurance. For example, the Faultless, it was bad bunker supply which caused all that, which has damaged the generator, their main engine and put the ship for weeks over weeks of [hire], which also affected the results, etc. So it was a bad bunker fuel claim if I may say so. So it is not a matter of the ship or anything like that. It was just -- these are very common these days. Unfortunately, we had one, a very bad one and it went through basically all of the machinery of the ships, so we had a lot of problems there for months going on in the current year.

So that was one thing and the other thing was simply generator. Again, we have claims there of course -- generator mishaps, the problems. So it was two specific things. Mainly it's the Faultless that had the big, big problem and the main part of that 6.5 claimable amount is for the Faultless case.

So with the sister ships, most of the '91, '92 builds, as you look to maybe modernize your fleet and sell those, would you be on the hook for any special repair work that was done before those assets were sold?

We are looking more into -- we think we are -- most of them are done with the major work, we are done. We don't expect any further major works to be done and we hope to be able to define the buyers before we do so.

Staying on the costs, but a different line item, the G&A was a little bit higher in the first quarter than in past quarters. Was there a one-time event tied to any stock compensation or any bonuses in the first quarter or should we be looking at this as a run rate going forward?

We had a number of non-cash items that are explained in the appendix like the restated cash compensation. In addition to that, we had all the closing of 2007 expenses that are basically all the (inaudible) and lawyers fees that are not expected to be that high in the second part of the year and of course, we were also hit with the euro, which is a major cost element these days, especially when you are talking about the large expense in respect of running and operating a setup here in Greece. We had an average of 1.37 dollar euro in '07 and now we are looking at cash of 1.5. So you have got -- only there, you have got a 10%, 12% increase.

Okay, and finally on drydocks, I know you are expensing drydocks now, so that can lead to more lumpiness in costs and potential surprises. What does the drydock schedule look like both from a timing standpoint off [higher] and also from an expense standpoint for the rest of this year?

Okay, for the remainder of the year, we have, for the second quarter -- for the second quarter, we have an expected tanker expense of around $6.5 million and about $2 million for the third quarter and nothing for the fourth. And for next year, we have about $3 million for Q1. Again, these are expected numbers, so the schedules may change. $6 million for Q2, $4.5 million for Q3 and $4 million for Q4.

Okay, thanks, Evangelos.

(OPERATOR INSTRUCTIONS). Paul Bornstein, Black Diamond.

Yes, I have one further question. I had some of the same questions on the costs, but since you have readdressed your strategy going to drybulk, leveraging up the Company, selling a lot of shares undermarket, do you think you are in better shape in terms -- and you are not cash flow positive either. Do you think you're going to be in better shape the next quarter coming up than if you did not do all these actions because right now, you have had a number of quarters where you did negative cash flow and I am not sure what the payoff is going to be since you are going to have to take a lot of the cash flow and pay down some of the debt and not much is going to existing shareholders in terms of dividends or any kind of payout. So how do you improve this stock performance is the bottom line here with your new strategy and how quickly is it executed?

Can you just -- sorry -- can you just tell me again what do you mean by new strategy?

Well, your strategy going to drybulk.

Oh, okay. I am sorry. Okay. Yes, that is -- that is not very new. That would be the comment for. Definitely. I am sure that the drybulk has improved a lot the situation. Just if you run the numbers without the drybulk ships in there, you will see the extent of the improvement. Now of course with today's -- not today meaning today, but with the average of the last if you want 12 months in the tanker market, they need -- a lot of corrective actions needed to be made.

Many of them have already taken place. Some of them are taking place as we speak, which I cannot comment on yet and once these are done, we are going to come back again where we were before. The (inaudible) that the market has reacted differently from what it was anticipated in 2005 and 2006. So really we had to do quite a few corrective actions.

The newbuilding deal has been a very profitable deal for us as you know. These ships were ordered in the mid-high 40s and today, they are valued at about 60 each. We have charted them at very profitable rates for seven to ten years, all of them on a bareboat basis, so we don't expect any surprises there and the drybulk fleet has increased in value since we have acquired it last year, mid last year and we have taken -- through a difficult period of time, we have taken all of them -- delivery of all of them. One of them has already been sold with a good profit. We have five of ten vessels being fixed for loan charters, higher than the average of the market and we have achieved that over the past last months and we expect this fleet to be making a lot of money for the Company for three to five years to come.

So the answer would be that yes, definitely we are on the right track. There is no doubt about that. It might -- it is a large fleet. You cannot unwind things as quickly as it is with smaller companies, but we definitely I think we are more than halfway there and it will now -- to come to your question of the next quarter, I think it will be better than the other one, but that is something that I can't really point out at this point in time, but we will definitely -- the more the time goes by and with more of these actions getting materialized and every quarter, we have a lot of news for everyone, so it is not as if we are sneaking around. So I think that in the next couple of quarters with a bit of luck, we are going to get to where we want to be.

Okay. Well, let's hopefully (inaudible). I'm sure your bonuses are right in being cash flow positive so --.

There have been no bonuses I can tell you that, so we are also awaiting for that to come back again to where it should be.

Okay, thank you.

Okay, thank you very much.

[Seth Lehman], [FGIC].

I just have a question about utilization rates that you might [expect] to see for the second quarter. Are we getting back to much stronger levels or will they be similar to the first quarter?

We have a few vessels that are currently undergoing their special survey drydocks, so everything is kind of planned. So so far, we have utilization in the Suezmax at around 83%, the handymax at around 89% and the drybulks are in excess of 97%, 98%. So it is pretty much (inaudible) to normal.

The main hit on the utilization of the first quarter was like I mentioned before and also Q4 of '07 was really two unlucky really accidents if you want to call them and one of them was really the [bulk fuel], which was taken off one ship for many, many weeks and that of course, if you are having in a quarter one ship not working for almost -- not almost -- 70% of the quarter, that alone damages enough the average, right? No, in the second quarter, we don't have any -- we didn't have any unlucky events like the ones described in Q4 and Q1. So we expect it to be closer to what it should be.

Okay and just on the handymax side, if I recall, there was like a super spike in rates probably in more the April and May time period. Is your Company able to benefit from it on any recharters?

On the handymax, you mean the tankers, right? On the MRs, yes, of course, we were able to benefit from it, but like I said in my speech, we are looking at already an average of $2000 more across the board on the MRs. We benefit from that through the profit-sharing agreement that we have in our contract. As you know, all of our MRs, all but one of our MRs have time charters with floors and profit-sharing agreements 50-50 shared between the owner and the charter above that. So the answer is yes, we did benefit from that across the board in the MR fleet.

Okay. And then my last question goes back to a very different point. I guess there was some noise, particularly in the last month or so, about confidence and management confidence in Board performance and my question is specifically if the Company would consider looking at any strategic alternatives that may involve a merger or to fold into another company if the offer was attractive enough?

Listen, everything -- in life, everything is for sale if the numbers are right. Let's start from there. But to come into more detail for your question, I think that definitely the -- there were specific reasons why there were talks about confidence in management and all that. One of them came from shareholders in the US, which have different plans for the Company than the Board has and the other one came from a guy in Greece who nobody knows of and to put it politely is of limited value if I may say so.

The management of the Company has been proven management I think for many, many years. It's the same management that got the Company being one of the most successful tanker companies in '04 and '05 and partly '06. So I think that -- don't look into different directions for other reasons. If we focus on the ball, it is a matter of things changing, of things going not the way that they were anticipated for certain deals, but on the other hand, we have done more I think I believe very, very, many, many if I may say so successful deals over the past three or four years.

So I think that doing the corrective actions that we need to do, doing them, working 24/7 will get us there as quickly as we can. Like I said to the previous speaker, I would like to change things in a day, but it is not going to happen and I am pretty fast. Believe me. I did the fastest IPO (inaudible). I have done a lot of fast things. So I am going to do it as quickly as I can. I hope to conclude it as quickly as possible.

Okay, fair enough. Well, thank you very much for answering my questions.

Natasha Boyden, Cantor Fitzgerald.

Thank you, operator. Good afternoon, gentlemen. I just want to go back to the cost issue that I think John had raised. Looking at your OpEx, it has been going up pretty substantially for the last four quarters in a row and I think it jumped up about $6 million this quarter. Can you discuss this and give us some idea of what it is going to look like going forward? I understand that crewing costs and (inaudible) and all of that is going up, but this is pretty significant.

Well, basically all the $6 million of increase has been [sold] between the two quarters in Q4 and Q1 with the unexpected repairs that we discussed before. So we are pretty much on the same average like we were in Q4 of 2007. So right now, we are doing our best to keep the costs at this particular level. I think that moderate assumption for drybulk -- sorry -- for the Suezmax would be about $10,000 per vessel per day and for the handymax, around $8000, $8500 per vessel per day.

So these are I guess the appropriate costs that we feel comfortable with per vessel of this particular age and also don't forget that the number of repairs, maintenance and other routine stuff like spares have increased a lot due to the euro and of course, crews. So these are the main cost elements that we saw the increase in the operating expenses the last six months.

Okay. So that $6 million there is purely that maintenance charge that you took?

Additional, yes.

Not maintenance. I would put it more into repair.

The repair. I beg your pardon. Yes, the repair charge for the three vessels. I want to clarify that.

It's a bit different, yes. It is a repair thing, which is claimable, yes.

And do you think you're going to get that back, the $6 million to $6.5 million?

We very much think so. We very much think so, unless the world collapses or something. It is a fair claim. Fair claims to be honest, but it is not just one, so more specific and yes, we do expect to get it back unless there is something that we don't know of, but we do expect to get it back.

Based on our historical experience, we kind of collect all the amounts that we claimed for. So this is something we are doing for many years.

It is a genuine valid (inaudible) machinery claim.

Can we talk about the charter hire expense? You have done a relatively good job at unwinding the Suezmaxes on the sale-leasebacks and how many do you have left now on the Suezmaxes?

Four, four pieces.

I'm sorry. Was that four you said?

Yes, we had five (inaudible) like I said in my speech. We have four now.

Okay and how many do you think you are going to be able to persuade the [units] unwind on that do you think?

We hope to be able at some point to persuade them for all of them, but I hope sooner than later.

Okay. And what about the handymax --?

That is going to be for the Suezmaxes, right? On the handymaxes, we have some -- we have some agreements with the understandings if I may say so with the current owners and we are looking into getting certain buyers to get to some certain levels and then we can unwind them as well. So we are working on that on the MR front, as well as much as we do on the Suezmaxes and we hope to have all that done pretty quickly.

Is there more of an issue with the MRs then there is with the Suezmaxes because it seems to me that you have been -- it's a bit easier for you to unwind the Suezmaxes than it has been to unwind the MRs?

The latest month it has been easier what you just described. The months before that, it was easier with the MR. So it is a matter of how the market moves. Today, we are working on both of them together.

Okay. Just looking at your NAV and where your stock is trading (technical difficulty) right now. Clearly your stock is substantially below your NAV and tanker asset values have remained strong. Are there any more plans to sell any of your existing owned tanker vessels?

Like I said, we are focusing more on the leases as we speak and we hope to have some news at some point soon. We are -- so that is a significant amount of (inaudible) as you know. And when all that is done or even when it is halfway, I think then we will clearly be able to identify if that is a very good deal that was done on the drybulk side and on the tanker newbuildings. So it is just something that has been overshadowed now by the specific reasons that you are well aware of.

But I think that we are going to be able to -- when we are able to unwind most of the final leases and get it back to where we it should be for today's market conditions, I think we are going to be able to get (inaudible) very quickly responding to that. So we are focusing 100% on that and then we are going to start looking at all the other issues.

Okay, great. Thank you very much.

There are no further questions in queue at this time. I would like to turn the call back over to management for closing comments.

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 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.