Ferdinand Lepere - Executive Vice President & Chief Financial Officer
Joseph Royce - President, Chief Executive Officer, Chairman and Director
Omar Nokta - Dahlman Rose & Co.
TBS International Ltd (TBSI) Q3 2009 Earnings Call November 10, 2009 10:00 AM ET
Thank you for standing by ladies and gentlemen and welcome to the TBS International Ltd. third quarter and nine months 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.
We now pass the floor to one of your speakers today, Mr. Fred Lepere. Please go ahead, Mr. Lepere.
Well, thank you. Good morning and thank you for joining TBS International Ltd’s quarterly conference call. The purpose of today’s call is to discuss the results of TBS’s third quarter and nine months ended September 30, 2009.
Yesterday we issued a press release before the market opened in New York, with financial and operational information for the third 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 area code 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.
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. These 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.
Thank you, Fred. Good morning everyone and welcome to TBS International’s conference call for the results of the third quarter and nine months ended September 30, 2009.
TBS has been positioning ourselves to take advantage of improving market conditions we believe will manifest themselves in 2010; and this connection we have been focusing on two primary objectives; one, addressing our corporate debt and strengthening our franchise and growing our customer base utilizing the TBS five star service.
We will begin our presentation with slide number 2; Addressing our corporate debt. e have long term debt that is not in default. However, technical accounting principles required the company to reclassify this long term debt as current in our September 30 financial statements.
We are seeking to address this issue on a permanent basis, by discussing with our banks modifications of the financial covenants and our existing credit facilities which would enable the TBS to be compliance with both covenants through maturity based on our current internal projections and by exploring the feasibility of new financing to repay some of our existing credit facilities. We have filed and have in place registration statement on form S-3 which allows TBS to issue registered security and may provide TBS another liquidity option.
Now let’s look at slide number 3. Strengthening our franchise and growing our customer base. Utilizing our TBS five star service we have been fortifying and growing relationships with existing clients, adding new clients to our customer base, exploring new markets and expanding logistics warehousing and customer service.
We continue to expand our China presence and strengthen our TBS Houston Hub, reinforcing our commitment to Houston Energy Mining and Logistic businesses. We are pursuing the opportunities created by the financial crisis and global recession by aggressively building new alliances and joint venture partnerships in the Caribbean, South America, South Africa and West Africa for logistics and ocean cargo movement.
Customers and clients today are seeking proven reliable counterparties; this enables TBS to leverage out strongest assets, our worldwide team of shipping professionals and our services consisting of ocean transportation, logistics, port services, operation and strategic planning. We are fully staffed agencies and representing offices on five continents and are taking steps to expand our trading areas.
Now looking at slide number four. Improving conditions in the TBS niche markets. In the third quarter ended September 30, 2009 our TBS liner and parcel services that primarily transports steel parcels, general and project cargo continue to lag behind the general market recovery.
As a result, elements of our freight were from their normal pre-crisis cargo rotations leading to excessive waiting times to load cargos and the need to utilize the spot market to employ vessels that were out of position. This had a negative impact on our financial and operating results which were generally flat with our financial and operating results for the second quarter ended June 30, 2009.
For the third quarter 2009, TBS had a net loss of about $18 million or $0.61 per share. We saw improvements in TBS cargo volumes and trade rates for the third quarter of 2009 with respect to both cargos which we carried on our Handymax and Handysize bulk carriers. This improvement is continuing and is being joined by improvement in our carriage of basic steel products.
Enquiries for the TBS parcel, general cargo and liner services are strengthening, leading us to believe that the recovery in these services will manifest itself beginning with the first quarter of 2010, leading to improving cargo volumes and trade rates.
Slide four highlights the principal TBS business services that are showing positive signs of recovery. We are therefore, cautiously optimistic that in 2010, the TBS fleet will lead to cargo balance and vessel location more inline with our pre-crisis historical trading patterns combined with improving credit rates.
Now I would like to turn the floor over to Fed Lepere, our Executive Vice President and Chief Financial Officer.
Thank you Joe. We should now all be on slide number five. This slide summarizes our third quarter 2009 operating and financial highlights. For the third quarter ending September 30, 2009, total revenues were $74.3 million, a decrease of 59% over the same period in 2008. Voyage revenues for the three months ended September 30, 2009 were $57.2 million, a decrease of 65% from the $161.4 million during the same period in 2008.
Time charter revenues in the third quarter of 2009 decreased by $3.3 million or 17% to $16 million from $19.3 million for the three months ended September 30, 2008. Our net loss for the third quarter 2009 was $18.1 million as compared to a net profit of $59.1 million during the same period last year. EBITDA which is a non-GAAP measure was $10.5 million for the third quarter of 2009, a decrease of 87% over the same period in 2008.
Our reconciliation of EBITDA is provided in the appendix of this presentation. Earnings per share on a basic and diluted basis for third quarter 2009 were a loss of $0.61 as compared to the earnings per share of $1.96 for the third quarter of last year. During the third quarter, we dry docked nine vessels, that improved three vessels that had entered into dry dock during the second quarter of 2009, for a total of 191 dry docking days.
Please now turn to slide number six. This slide demonstrates the revenue metrics of our business for the third quarter of 2009. We begin with our Voyage revenues. During the third quarter of 2009, we operated 29 vessels in our Freight Voyage business and have 2,630 Freight Voyage days as compared to 36 vessels and 3,296 Freight Voyage days in the third quarter of 2008.
Our daily voyage time travel charter equivalent was $12,296, a decrease of 63% compared to last year’s third quarter. As you can see on this slide, during the third quarter of 2009 we had a 20% decrease in the total tons of cargo shipped and a 27% decrease 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 an $11,048 in the third quarter of 2009, a decrease of 66% from the $32,206 during the same period of 2008, indicative of the worldwide economic crisis. We operated 15 vessels in this business with a total of 1,384 days as compared to 6 vessels for 577 days in the third quarter of 2008.
Now slide 7 and 8 depict our operating and financial highlights, as well as key metrics for the nine months of 2009. These slides are self explanatory and information is presented in more detail in our third quarter and nine months 2009 earnings press release 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 this conference call.
Please now turn to slide number nine. This slide provides the highlights of our consolidated balance sheet. As of September 30, 2009 our net debt to capitalization ratio stood at 35.1%. Our cash balances at the end of September 2009 were $46.4 million plus $12.7 million in restricted cash that will be used to make payments to the yard as construction milestones are reached in our new building program.
We have now reached the end of our presentation. The slides 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 you for your interest in and support of our company, and I would like to open the conference call for questions from our investors.
Operator, please open the floor for questions.
(Operator Instructions) Your first question comes from Omar Nokta - Dahlman Rose & Company.
Omar Nokta - Dahlman Rose & Company
So I noticed a obviously like you are saying in the call there is an improvement in your overall day rate and it seems to, I think 2Q is better than 1Q and now 3Q is better than 2Q. Are you still seeing that trend develop into the fourth quarter thus far?
Yes, we actually on our bulk side very much so on our bulk carriers, especially those ships that are trading in the Atlantic, I think what’s more positive sign is the fact that we are seeing more of the general cargo steel process and project cargo coming to the scene, and this is a big part of what’s been missing for the last couple of quarters.
We think this is a positive sign for our 2010, and this will put the company, especially our multipurpose tweendeckers back in what we call sync. We will be able to have more schedules, more positive schedules, there will be less disruptions, there will less balancing and there will be less ships out of position and we see this continuing to grow through 2010.
Omar Nokta - Dahlman Rose & Company
Okay, and this new strength that’s coming into the market, is it really coming from China or are there any specific routes that you are seeing the most opportunity.
Well on the bulk side, pretty much outside of the Pacific and the Atlantic trades is across the board. But what we are seeing is, in the steel sector certainly more steel exports especially out of Brazil.
I think that from what we have been told talking to our different clients, as well as being at the ILAFA Steel Conference a couple of weeks ago, this is the big Latin American conference that was held in Quito, Ecuador, is that the steel industry, especially the Brazilians feel very confident in 2010 between their internal market and their export market, and just to give you a side example of how this really did effect and knock our schedules pretty much out of sync.
The way that the Brazilians were accepting orders for steel from their customers was that they would accept the order and produce it and ship it all on the same month, while historically, they would accept the order on one month, produce it on a second month and ship it on a third month and of course this worked then and it also worked for us in having a smooth schedule well into the future.
On the other side of that are coming out of Asia, we are seeing again, more demand for sophisticated steel, coming out of Japan and more basic steel coming out of china. But on top of that, we are also seeing an increase in demand for general cargo, which I would say, is slowly getting back to pre-crisis levels not rates, but levels and volumes and we are starting to see to rebirth of the project business, which is really been absent through the good part of this year or since the crisis started last year.
More and more projects are coming into play, more and more people are stepping up, and this is what gives us the confidence that we can get our multipurpose tweendeckers back into a traditional flow that would take a lot of these different problems out of the mix and give us a more positive result going into next year.
Omar Nokta - Dahlman Rose & Company
Then just wanted to sort of switch gears on the debt side, obviously you reclassified your long term debt as current, and just wanted to get a sense from you guys of what kind of steps or where do you really see yourselves going with respect of getting new capital, is it high yield market that’s probably the best of that right now.
Well I think in general that we are looking at different options across the board, and when we finalize on which direction that we’re going and we will certainly let the market know, but I think it’s a little bit premature to discuss a specific option that we are looking at right now.
Omar Nokta - Dahlman Rose & Company
Okay that’s fair. And then just one final question with the move to Ireland, are there going to be any executive moves there or is it just principally, just I guess you just have an office out there where you really have senior executives move there as well.
At this time, we don’t concentrate moving any of our senior people to Ireland.
Your next question comes from Ben Millman – Jeffrey.
Ben Millman – Jeffrey
I have a handful of questions here for you. First of all, I’ve noticed certainly in this quarter and then in the last quarter that the number of vessels in the charter market has picked up pretty substantially relative to last year. Is that just more indicative of the circumstances in market as they stand right now and maybe not having consistent enough level of cargos in your parcel business, or is that I mean, or maybe any of those on longer term time charters or would it be vise to maybe model those, modeling more time charter days going forward.
It’s really the former with this severe disruption that has been caused by the financial crisis over the past year, we’ve been forced to place more of the ships into the stock market and when you do that either taking a spot voyage basis or a spot time charter basis. We don’t intend to place any of our ships on time charter; we see the balance slowly coming back into normal course and with cargo demand and again that will put the ships back into what has been our historic trading patterns and our historic trading schedules.
Ben Millman – Jeffrey
Then kind of going along with that, and maybe your color as to how things have progressed in terms of the various markets and so forth. Do you think that it’s, I know over the past few years you guys have said that you typically see about six month lag in your business relative to say the standard dry bulk business. Is that something that you see materializing again this cycle or maybe the dynamics a little bit different?
No, when we look going into 2009 at the recovery, the potential recovery, we saw the recovery being led by the bulk carriers, and actually being led by the biggest ships because the country that was able to step up and immediately was China and of course this was reflected in the large volumes of iron-ore and coal that they moved in of course on the Capesize rates. Of course it has moved down to other parts of the markets, especially when the credit situations started to become more normal.
We have always felt that the general cargo, project cargo and steel parcels would lag about six to nine months; obviously we were hoping it would be closer to six months, but the reality is that it’s closer to nine months. But we are starting to see this play out as we predicted the question is, is it going to take another month or two or whatever, but all the signs of that the general cargo business, the steel parcel business is starting to comeback into play as well as the project cargo business.
Ben Millman – Jeffrey
Again sort of on the theme of the market dynamics and so forth, you mentioned that the competitive landscape has obviously changed a lot given credit issues in the market as it has been for the last year. So, and there was a point in the slide talking about how Africas maybe the next horizon for you guys.
Have you seen a real reduction in the number of competitors out there for your, especially in the parcel business area for you guys, would you characterize your position as more favorable amount than it was say a six months ago relative to your competition?
Well I would take that our competition has remain pretty static I would say that a few pf these ship operators and these are people that basically go out and denote on ships had some problems, but that pretty much restate in the same place.
I think the good thing is it wasn’t a question where we were losing cargo, it was just a question where our customers weren’t shipping their cargo, and we see now our customers coming back to us with more and more increased volumes, certainly more confidence going into 2010 on their overall business.
I think one of the important things is that we have been very aggressive talking to our customers during this entire crisis, where we could help them and it’s starting to pay positive benefits, not only in our traditional markets, but certainly with new market opportunities.
I should mention for example in West Africa, and I think the one thing that a lot of our listeners should understand, the positive thing about the African market is that a lot of these countries was really never caught up in the world financial crisis per se because a lot of these companies and countries were really not in the world financial system. So that has been pretty steady and we see opportunities there especially for our multipurpose tweendeckers.
Ben Millman – Jeffrey
Great, and then just this just came to mind maybe along the lines of your discussions with your customers in the last question, but the have be began the process of your 2010 pricing negotiations, and how do you anticipate that playing out, is it going to be another case where it’s just kind of delayed and see how the markets shapes out or will it be a little bit more normal this year than last year.
I think that’s really a great question and the reason I say that is that we talk about one year ago, because historically we have always said at this time of the year between November and December and look into the upcoming year.
Last year of course when we looked back we were in the teeth of the crisis tremendous uncertainty, people nearly couldn’t focus on 2009, and we’re pretty much to forced into certainly in the beginning of the year, the first half of the year to month by month cargo by cargo.
We have seen more confidence come back across from our customer base, and as a result of that we have been sitting down talking to our customers, and actually talking about doing traditional contract business going into the next year. So, that gives us a lot of confidence, and that’s pretty much how our historic business plan has worked and we see this, this year going into 2010 are following similar patterns in the past.
(Operator Instructions) Your next question comes from Seth Lehman – [Reading].
Seth Lehman - Reading
You answered many of the questions I was thinking of earlier, but I guess what I am trying to think about in terms of your business strategy, given that you have some optimism, whether your fleet size is right for this rebalance, and in particularly that you added many vessels for the 2008 through 2007 period, does it may be make sense to perhaps sell off some of the older vessels if they are not maybe profitable on a sustaining basis if the prices are where they are.
Good morning. We feel that our fleet certainly is appropriate for what we see coming in 2010, especially with the multipurpose tweendeckers. I mean there is no doubt, it’s not that you could sell these ships often and then go back into market and buy them, they are not there.
Of course we have placed tremendous amount of effort and expense into expanding their lives, and this is very, very important, this is a key part of our overall parcel liner trades, while on the bulk side, that’s always a tough question of balance, and with the combination of ships going in and out of position especially for dry docks, in the dry docks etc.
We feel that as 2010 unfolds that we will be able to what we have always felt was our normal trading patterns which meant that we would probably cover about 70–75% of our business with are in contracts as well as our services etcetera. And that our fleet is the appropriate size right now for our present business as well as potential new business that we are working on.
Seth Lehman - Reading
Okay, and just in terms of your new build program for the multipurpose tweendeckers, I guess you signed up for them at a time when the market was far more robust than it is today. In terms of the company still feel it is equally committed to adding those vessels over the next 12 to 18 months.
Well absolutely, I mean this is very, very important part of our business plan for the future, these ships the prices that we were basically able to buy these ships have maintained their values all the way through these difficult times in the past year.
The first ship has delivered Rockaway Belle, she is performing her maiden voyage and literally the ship is everything we expected her to be, she takes more general cargo coming in from Asia up to 25% more floor space as well as, at times doubling our capacity to take back our minerals and metals back into Asia.
So we are very excited about the ships, they are performing as we expect them to perform, and we feel that they will make positive contributions to the company from day one.
There are no further questions at this time. I would now like to turn the presentation back over to Mr. Royce for closing remarks.
Okay, well thanks again to everybody, thank you very much and again I would like to thank you for your interest and support and look forward to our next conference call for the fourth quarter 2009 results, and I would like to wish everybody a nice day. Thank you operator.
Ladies and gentlemen, the replay for this call can be accessed at 1888-386-8010. We thank you for your participation in today’s conference. This concludes the presentation you may now disconnect and have a great day.
Thank you and bye-bye.
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