TBS International Q2 2009 Earnings Transcript

| About: TBS International (TBSI)

TBS International Limited (NASDAQ:TBSI)

Q2 2009 Earnings Call

August 06, 2009 10:00 AM ET


Ferdinand V. Lepere - Executive Vice President and Chief Financial Officer

Joseph E. Royce - President, Chief Executive Officer, Chairman and Director


Omar Nokta - Dahlman Rose & Co.


Thank you for standing by ladies and gentlemen and welcome to the TBS International Limited Second Quarter 2009 Financial Results Conference Call. We have with us, Mr. Joseph Royce, Chairman, President and CEO, and Mr. Fred Lepere, Executive Vice President and Chief Financial Officer of the company.

At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions).

The conference call will also be webcast live audio and slideshow on the Investor Relations section of the company's website, www.tbsship.com, by clicking on the webcast banner.

I must advise you that this conference is being recorded today, Thursday, August 6, 2009.

We now pass the floor to one of your speakers today, Mr. Fred Lepere. Please go ahead, Mr. Lepere.

Ferdinand V. Lepere

Well, thank you. Good morning and thank you for joining TBS International Limited's quarterly conference call. The purpose of today's call is to discuss the results of TBS's second quarter and six months ended June 30, 2009.

Yesterday we issued a press release after the close of the stock market in New York, with financial and operational information for the second quarter.

If you have not received this release, you may log onto our website at www.tbsship.com and navigate to the Investor Relations page. Or you can call Capital Link at 212-661-7566.

We will also post the transcript of this call on our website once it's been prepared. Our remarks today will be followed by a question-and-answer session. For those of who want follow our slide presentation, please go to TBS website which again is www.tbsship.com and click on the webcast link.

Note that the slides are user controlled.

Those of you who want to follow the webcast, please click on the arrow at the bottom of the webcast screen to make the slides turn. Also please note that the webcast will be archived on our website.

And now I'd like you to please turn to slide number one. This slide refers to forward-looking statements. During the course of this conference call, we may make forward-looking statements. Such statements are just predictions and involve risks and uncertainties such that actual results may differ materially.

I'd like to refer you to our fillings with the Securities and Exchange Commission, in particular our quarterly reports on Form 10-Q and our Annual Reports on Form 10-K. Those documents contain and identify important factors that could cause the actual results to differ materially from those expressed in these forward-looking statements.

And with that, I'd like to introduce Joseph Royce, our Chairman, CEO and President.

Joseph E. Royce

Thank you, Fred. Good morning everyone and welcome to TBS International's conference call for the results of the second quarter and six months ended June 30, 2009. We will begin our presentation with slide number two looking forward.

We entered this year facing the most severe financial crisis, since the Great Depression. Today, the outlook is considerably brighter. We have the positive impact of the Chinese stimulus package which is the forerunner of stimulus packages in many other global economies. This has resulted in record iron ore and coal imports and improved steel and commodity prices.

We would basic commodities and raw materials to be in the forefront of an economic recovery and this has provided strong support for the Capesize and Panamax freight rates.

The positive impact on the smaller bulk commodities carry by outside vessels do not materialize into the end of the second quarter. And we are now experiencing improvements in both cargo volumes and trade rates in our bulk cargo business going into the third quarter.

The cargo volumes and trade rates in our liner and parcel cargo business has led behind. We anticipate that the movement of high valued finished goods and project cargo should improve towards toward the end of this year as our customers restock there inventories and resume their projects.

Now let's turn to slide number three, TBS business focus.

Our reduced revenue, EBITDA and resulting net loss were not unexpected considering the impact of the economic crisis on our customer base.

We anticipated these financial results and accordingly prepaid all principal payments due on our debt till the end of 2009.

Having secured our financial position to these prepayments and covenant waivers, we focused on strengthening our franchise by increasing market share in our core markets, adding to our customer base, exploring new markets and expanding logistics and warehouse services.

Now look at slide number four, TBS growth opportunities.

In addition to strengthening our franchise, we are preparing for the market recovery and taking advantage of new opportunities.

We enhanced our presence in Asia, moving our Senior Executive responsible for our Pacific Liner Service to Shanghai.

We reinforced our commitment to the Houston Energy and Logistics business segments by relocating two Senior Executives to Houston, expanding our office and establishing a Port Warehouse. Houston is the regional project logistics hub.

We are exploring joint venture opportunities in the Caribbean, South America and Africa for logistics and ocean cargo movements.

We believe that this proactive approach combined with our efficient and reliable service, will serve TBS well in the second half of 2009 and the economic recovery in 2010.

Now I'd like to turn the floor over to Fred Lepere, our Executive Vice President and Chief Financial Officer.

Ferdinand V. Lepere

Thank you, Joe. We should now all be on slide number five.

This slide summarizes our second quarter 2009 operating and financial highlights. For the second quarter ended June 30, 2009, total revenues were $72.2 million, a decrease of 54% over the same period in 2008.

Voyage revenues for the three months ended June 30, 2009 were $59.7 million, a decrease of 54% from the $128.7 million during the same period in 2008.

Time charter revenues in the second quarter of 2009 decreased by $13.1 million or 52% to $12.2 million from $25.3 million for the three months ended June 30, 2008. Our net loss for the second quarter of 2009 was $16.9 million as compared to a net profit of $52.6 million during the same period last year.

EBITDA which is a non-GAAP measure was $11.2 million for the second quarter of 2009; a decrease of 85% over the same period in 2008.

A reconciliation of EBITDA is provided in the appendix of this presentation.

Earnings per share on a basic and diluted basis for the second quarter of 2009 was a loss of $0.57 as compared to the earnings per share of $1.82 for the second quarter of last year.

Taking into account the current market conditions, we have decided to cut back on our accelerated maintenance program. We will be making only necessary maintenance related capital expenditures in 2009.

During the second quarter, we drydocked eight vessels that included five vessels that were entered into the drydock during the first quarter 2009 for 136 drydocking days in total.

Please now turn to slide number six. This slide demonstrates the revenue metrics of our business for the second quarter of 2009.

We begin with our Voyage revenues. During the second quarter of 2009, we operated 33 vessels in our freight voyage business and had 2,982 freight voyage as compared to 30 vessels and 2,758 freight voyage days in the second quarter of 2008.

Our Daily Voyage Time Charter Equivalent was $11,268; a decrease of 65% compared to last year's second quarter.

As you can see on this slide, during the second quarter of 2009, despite the turmoil in the market, we had a 7% increase in the tons of cargo shipped and a 5% increase in the tons of cargo shipped excluding aggregates.

We now turn to our Time Charter revenues on the same slide. Our Average Daily Time Charter Equivalent for this business was $9,642 in the second quarter of 2009, decrease of 68% from the $30,563 during the same period of 2008. Indicative of the decrease in charter hire rates due to the collapse in worldwide shipping markets.

Slide seven and eight depict our operating and financial highlights as all as key metrics for the six months of 2009. These slides are self explanatory and the information is presented in more detail in our second quarter and six months 2009 earnings press release we issued yesterday, as well as in our 10-Q for the period.

I will answer any questions you may have during the question-and-answer session of the conference call.

Please now turn to slide number nine, consolidated balance sheet highlights.

This slide provides the highlights of our consolidated balance sheet. As of June 30, 2009, our net debt to capitalization ratio stood at 33.5%.

Our cash balances at the end of June 2009 were $52.5 million, plus $15.2 million in restricted cash that will be used to make payments to the yard as construction milestones are reached in our new building program.

The decrease in cash compared to year-end December 31, 2008 is due to the prepayment of loan principal made in connection with the loan modifications and covenant waivers obtained in March, 2009.

We have now reached the end of our presentation. The slide in the appendix provide our EBITDA reconciliation and additional information on our business model, our trade routes, our fleet and our global network.

Please take a look at them at your convenience.

We thank your for your interest in and support of our company and I would like to open the conference call to questions from our investors. Operator, please open the floor for questions.

Question-and-Answer Session


(Operator Instructions). Your first question comes from the line Omar Nokta from Dahlman Rose & Company. Please proceed.

Omar Nokta - Dahlman Rose & Co.

Thank you. Good morning, guys.

Ferdinand Lepere

Good morning, Omar.

Joseph Royce

Good morning.

Omar Nokta - Dahlman Rose & Co.

Good morning. I just wanted to get a sense on the delays that you disclosed. Is that something that you'd try to do yourself or is that something that you tried to have happen or is that just delivery delay from the yard?

Ferdinand Lepere

You're talking about the new building?

Omar Nokta - Dahlman Rose & Co.


Joseph Royce

Yeah it's the yard. We actually, as we're working at this -- it's working in our favor obviously because it's better to have the ship couple of months delayed. But this is then the yard's delay.

Omar Nokta - Dahlman Rose & Co.

Okay. And you feel good about the deliveries coming on schedule or the new adjusted schedule?

Joseph Royce

I do. In fact the first delivery stays on target; we'll have a nice voyage coming in from Asia. And this is part of what we're starting to see the improvements in our steel parcels and general cargo services for the second half of the year.

We're starting to see more enquiry and these are good signs, especially as the new building start to come on stream.

Omar Nokta - Dahlman Rose & Co.

Okay. And just I noticed that your operating expenses have been coming down as you said they would. Is that a good run rate for us to expect going forward in the second half, say 25 million a quarter?

Joseph Royce

Yeah, we've been working very, very hard at this, not only looking at our expenses, but certainly operating ships in our business and we don't see any real changes in this trend as the year progresses.

Omar Nokta - Dahlman Rose & Co.

Okay. And I know this is a tough one to answer but based off of what we've seen in the market thus far obviously the Baltic has improved on average from the first quarter. It's been coming in recently, but how do you see say your average earnings potential in the third quarter being compared to the second? You're seeing improvement or may be more flattish?

Joseph Royce

Yes I do. In fact sitting here looking towards the end of the year, I feel much better than obviously in January looking towards the first six months of the year.

And I think what you've seen in the Baltic Dry Index is a reflection of the stimulus package in China. China certainly was the first major economy that incorporated their full stimulus package. And you see this in the rates of the Capesize and the Panamaxes which are basically around the iron ore, more (inaudible) to China for their infrastructure and steel industries, as well as the coal, not only to support their steel industry, but also energy.

What we are starting to see as a result of the crisis was that the other economies around the world are slowly recovering and where we have been affected more than most companies is on our liner parcel services not only coming out of Asia but certainly in South America. And this was based around the steel, general cargo, project cargo et cetera.

And everyone took a big, big step back. Now with a drawdown of inventories with improved steel prices, improved steel enquiry, we are starting to see more cargo enquiry from our customers.

And just to give you a bit more color on this, Brazil for example is one of our major areas in loading steel and steel parcels.

A couple of the major steel mills in Brazil are now reopening furnaces that they closed in the peek of the crisis, Valley opened a DLI plant, reopened.

We've seen internal prices of steel in Brazil improving as well as we're starting to see steel prices worldwide and volumes increasing.

We are starting to see a lot of our project people that pretty much were sitting on the sidelines when they suspended the project as a result of what we experienced in first half of this year, now coming back and talking to us.

So our view is that we're going to start to see an improvement in our tween deck general cargo project liner services towards the end of the year and going into the beginning of next year.

So, we see positive signs. And as I said earlier, I feel a lot better sitting here today looking forward going into the balance of this year and the beginning of the next year than I did in January.

Now on our bulk side, obviously we are seeing more activity from our customers. Customers are now gaining confidence in the sense that they're looking to talk more about contracts as their business starts to gain traction and we've seen our people on the West Cost of South America in the mining sector with the minerals and metals, not only have we concluded contracts in the balance of this year, that in a couple of instances, we've also concluded contracts for the first half of 2010.

So we're starting to see it, we've starting feel it, now we just have to see it obviously, hit the bottom-line and I think that looking at a recovery, you see the bulk side of the raw materials first, and you have a time leg associated with the project to steel and the package goods, second and I think this is playing out along those lines.

Omar Nokta - Dahlman Rose & Co.

Okay. That's interesting. Joe that's very good color. Thanks a lot for that.

Joseph Royce

You're welcome.


(Operator Instructions). Your next question comes from the line of Abdul Rahman from Indonesian Capital Bank. Please proceed.

Unidentified Analyst

Thank you. Real quick, I was just wondering you mentioned Houston as the hub for the project business in the region. Can you take us through this business and its potential overall for TBS?

Joseph Royce

Yeah. I think that's a great question because it really goes to the core of what we call our five-star service where we not only offer Ocean Transportation but Operations, Logistics, Port Services and Strategic Planning.

Houston is the world's and the state's energy hub, as well as mining and many of the world major construction companies are based at in Houston.

And a lot of that of those projects and the project cargo come out of Huston and to be involved in the customer supply chain, and we're are talking to some companies now, as the confidence back into that market, people are now re-siting and re-discussing projects that were suspended.

And what we do that we ship there and re-talk across some of the customer and basically tell them working with TBS, we cannot only bring your cargos from different parts of the United States, for example, bring it back to Huston, stage them in our warehouse, but also load them our ships and bring them down to the markets, for example; in South America, where not only we can do the port operations but we also can do warehousing and internal logistics.

And we feel very confident about this concept.

We feel that it will add a tremendous added value to TBS and our customers and recapture the customer's supply chain.

And this is pretty much goes as I said earlier to the core of what we see the TBS business plan going forward.

Unidentified Analyst

Thank you. That was sounds great and appreciate you taking my call.

Joseph Royce

Thank you.


Your next questions come from the line of Katherine Christo from Rosedale Management (ph). Please proceed.

Unidentified Analyst

Good morning.

Ferdinand Lepere

Good morning.

Joseph Royce

Good morning.

Unidentified Analyst

How does the heavy lift capability improve your service to your customers? Can this have a measurable effect?

Joseph Royce

Yes it does, I mean when you talk about a big project and I can just give you an example of a project that we just concluded this year for Mitsubishi. They were building two power plants on the West Coast, one in Mexico and the other in Northern Chile. And to build these plants, they had about 100,000 revenue times of different components, including heavy lift pieces up to 300 tones. And not only does this bring the full five-star service where we sat across from Mitsubishi and worked with them in planning the business.

But we also were able to bring heavy lift shifts in and if you look in our appendix, you'll actually see on page 14, photos of the cargos that we carried for Mitsubishi and a chart. And this again, when we sit across from these customers having the full capability of not only planning the project, but working with the project including their heavy lift pieces, this gives them a lot of confidence because the major thing here is not only do you carry their cargo but you also keep up with their schedules. These are billion dollar projects and this is one of the core keys of TBS where our customer has total confidence in our ability not only to maintain schedules, but to obliviously move cargos of this magnitude.

Unidentified Analyst

Great, thank you very much for your time.

Joseph Royce

Thank you.


(Operator Instructions). At this time, there are no further questions. I would now like to turn the call back over to Mr. Royce for closing remarks.

Joseph Royce

Well, thank you very much. And again, I would like to thank you and everybody on the call for your interest and support and look forward to our next conference call for the third quarter 2009 results and I would like to wish everyone a nice day. Thank you and bye-bye.


Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

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