Executives
Fred Lepere – EVP and CFO
Joseph Royce – Chairman, President and CEO
Analysts
Ben Nolan – Jefferies & Co
Bill Nasgovitz – Heartland Advisors
TBS International plc (TBSI) Q4 2009 Earnings Call March 16, 2010 11:00 AM ET
Operator
Thank you for standing by ladies and gentlemen, and welcome to the TBS International fourth quarter and year-end 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, at which time if you wish to pose a question, please press star one on your telephone keypad, and wait for your name to be announced. (Operator instructions) The conference call will also be web cast live audio and slideshow on the Investor Relations section of the company’s website, www.tbsship.com by clicking on the web cast banner. I must advice you that this conference call is being recorded today, Tuesday, March 16, 2010.
We now pass the floor to one of your speakers today, Mr. Fred Lepere. Please go ahead, Mr. Lepere.
Fred Lepere
Well, good morning and thank you for joining TBS International’s quarterly conference call. The purpose of today’s call is to discuss the results of TBS’s fourth quarter and year-ended December 31, 2009.
This morning we issued a press release before the market opened in New York, with financial and operational information for the fourth quarter and year-ended December 31, 2009. If you have not received this release, you may log onto to 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 you who want to follow our slide presentation, please go to the TBS website, which again is www.tbsship.com and click on the web cast link. Note that the slides are user controlled.
For those of you who want to follow the web cast, please click on the arrow at the bottom of the web cast screen to make the slides turn. Also please note that the web cast 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.
Joseph Royce
Thank you Fred. Good morning everyone and welcome to TBS International’s conference call for the results of the fourth quarter and year ended December 31, 2009.
We will begin our presentation with slide number two. TBS today positioned for the recovery. 2009 was a particularly challenging year for the global economy and shipping, especially for the dry cargo markets, where we experienced a dramatic decline in demand and freight rates. In this context, our financial results for 2009 were not unexpected, and they reflect the normal progression of the recovery of dry cargo ocean transportation from the depths of the severe global recession we experienced.
There are already signs of a gradual yet fragile economic recovery around the world. This recovery was initiated as of the second quarter of 2009 with the movement of basic raw materials such as iron ore, coal, and agricultural products on Capesize and Panamax vessels and had a positive impact on the bulk cargo side of our business. Our TBS liner and parcel services, that primarily transport steel parcels, general and project cargo, began their recovery during the fourth quarter, which proved to be our best quarter in 2009. This recovery is gaining momentum as we enter 2010.
Following shareholders’ approval, we completed TBS' redomiciliation to Ireland, which we believe will provide us with economic benefits and help ensure our continued global competitiveness.
In September 2009, we took delivery of the M/V Rockaway Belle, our first new building multipurpose tweendecker, and expanded our fleet to 48 vessels. This was a significant milestone for our company, and was part of our long-term fleet modernization and expansion program. The M/V Rockaway Belle is the first in a series of six larger multipurpose tweendecker vessels specifically designed by a TBS team with the objective to increase our operational flexibility, optimize our cargo transportation and support the requirements of our customer base.
Now let us turn to slide number three, strengthening our franchise and customer base. During these adverse and challenging market conditions, we continued to leverage our strongest assets -- our worldwide team of shipping professionals and our Five-Star Service consisting of Ocean Transportation, Logistics, Port Services, Operations and Strategic Planning.
We strengthened our local presence in China, and established a strong presence in Houston, which is the regional energy and project logistics hub. We maintained the quality and reliability of our services, stayed close to our customers strengthening our franchise, and took several new initiatives positioning TBS to benefit from the recovery.
Now let us look at slide four, new long-term alliance programs. We pursued 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 movements. Looking ahead, there are still several significant challenges to cope with. However, we believe that we can be cautiously optimistic as the global economy is slowly, but gradually recovering and there are improving conditions in TBS’ mixed markets.
Now I would like to turn the floor over to Fed Lepere, our Executive Vice President and Chief Financial Officer.
Fred Lepere
Thank you Joe. You should all now be on slide number five. We had long-term debt that does not comply with the financial covenants in our loan agreements. We have obtained covenant waivers from four of our lenders, which expire on April 1, 2010. We are seeking to address this issue on a permanent basis by discussing with our banks modifications of the financial covenants in our existing credit agreements, which would enable TBS to be in compliance with these covenants through maturity based on our current internal projections, and by exploring the feasibility of new financings to repay some of our existing credit facilities. We have filed and have in place a registration statement on Form S3, which allows TBS to issue registered securities and may provide TBS another liquidity option.
Please now turn to slide number six. This slide summarizes our fourth quarter 2009 operating and financial highlights. For the fourth quarter ended December 31, 2009, total revenues were $84.8 million, a decrease of 39% over the same period in 2008. Voyage revenues for the three months ended December 31, 2009, were $66.6 million, a decrease of 49% from the $130.7 million during the same period in 2008.
Time Charter revenues in the fourth quarter of 2009 increased by $10.3 million or 156% to $16.9 million from $6.6 million for the three months ended December 31, 2008.
Our net loss for the fourth quarter 2009 was $10.7 million as compared to net profit of $34.6 million during the same period last year. Earnings per share on a basic and diluted basis for the fourth quarter of 2009 were a loss of $0.36, as compared to earnings per share of $1.15 for the fourth quarter of last year. I'd like to mention here that the net loss and the earnings per share for the three months ended December 31, 2009, included $1.2 million or $0.04 per share for expenses related to the company's redomestication to Ireland. Before this expense, net loss would have been $9.5 million, and earnings per share would have been a loss of $0.32 per share.
EBITDA, which is a non-GAAP measure, was $19.4 million for the fourth quarter of 2009, a decrease of 69% over the same period in 2008. The reconciliation of EBITDA is provided in the appendix of this presentation. During the fourth quarter, we drydocked 5 vessels for 183 drydocking days in total.
Please now join me on slide number seven. This slide demonstrates the revenue metrics of our business for the fourth quarter 2009. We begin with our voyage business. During the fourth quarter of 2009, we operated 30 vessels in our Freight Voyage business, and had 2742 Freight Voyage days as compared to 38 vessels and 3471 Freight Voyage days in the fourth quarter of 2008.
Our Daily Voyage Time Charter Equivalent was 13,158 per day, a decrease of 47% compared to last year’s fourth quarter. As you can see on this slide, during the fourth quarter of 2009, we had 11% decrease in the total tons of cargo shipped and 14% decrease in the tons of cargo shipped, excluding aggregates.
We now turn to our Time Charter revenue metrics on the same slide. Our average daily time charter equivalent for this business was $12,184 in the fourth quarter of 2009, an increase of 53% from the $7,963 during the same period of 2008. This is indicative of the recent improvement in the shipping markets. We operated 14 vessels in this business with a total of 1,322 days as compared to 7 vessels for 620 days in the fourth quarter of 2008.
Now slide eight and nine depict our operating and financial highlights, as well as key metrics for the full year 2009. These slides are self explanatory and the information is presented in more detail in our fourth quarter and year-ended December 31, 2009 earnings press release, as well as in our 10-K 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 ten. This slide provides the highlights of our consolidated balance sheet. As of December 31, 2009 our net debt to capitalization ratio stood at 35.8%. Our cash balance at the end of December 2009 was $51 million plus $8.7 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 net loss 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.
Question-and-Answer Session
Operator
(Operator instructions) And your first question comes from the line of Ben Nolan with Jefferies. Please proceed.
Ben Nolan - Jefferies & Co
Good morning guys. How are you guys doing?
Fred Lepere
Good.
Joseph Royce
Good morning Ben. How are you doing?
Ben Nolan - Jefferies & Co
Good, good. I had just several questions that I was going to run past you, some -- well, the first, there was a pretty, I guess, over $6 million reduction in your vessel Opex versus the third quarter, I was just trying to get a little more color on that, maybe what we should think is an appropriate level going forward?
Fred Lepere
Ben that actually was related to some cleanup in prior period adjustments. So I would not look at the fourth quarter as indicative of what the vessel expense would look like going forward.
Ben Nolan - Jefferies & Co
Okay. So, should it maybe…
Fred Lepere
But there was about a $4.5 million to $5 million adjustment in the vessel expense that really relates to prior periods. So when looking at the fourth quarter I would add that back.
Ben Nolan - Jefferies & Co
Okay. Perfect. And then another sort of modeling question. Can you maybe give little bit of color around what the delivery schedule for the new buildings is, and then about how much Capex should be associated with those in 2010 and 2011?
Joseph Royce
Sure. In 2010, we are anticipating payments to the yard of about $56 million in progress payments. Of that, about 35 million will come from the loan facility that we have with the Royal Bank of Scotland.
Ben Nolan - Jefferies & Co
Okay.
Joseph Royce
And about 8.7 will come out of our restricted cash account, meaning that operating cash will be about a $12 million outlay in 2010.
Ben Nolan - Jefferies & Co
Okay.
Joseph Royce
In 2011, it is a little over $16 million in payments to the yard of which $10 million will come from the loan facility, or about $7 million net operating cash.
Ben Nolan - Jefferies & Co
Okay, perfect. All right, that is very helpful. And then just more I guess business oriented, actually first kind of along the same line, are there any updates that you can maybe give on the debt side of things as it relates to maybe your impression as to your banks, your various banks’ willingness to maybe extend or work with you on the loan waivers or really just any color as to how you are thinking this will be resolved.
Fred Lepere
Sure. I mean without stating specifically, because we can't at this point, we don't have a definitive answer per se, however, we are working with our banks very closely. We have excellent relationships with all the banks. They have shown to be extremely willing to work through these situations, and work with us to come to a position that has more of longer term flavor to it, so that we can have hopefully a solution that takes us through the tenure of the loans out through the end of 2011.
So we are looking at those kinds of solutions in terms of modifying the covenants or waiving the covenants. It is tough to say exactly where we will land, but probably it will be a combination of both waivers of the original covenants plus some new covenants set at levels that are commensurate with our projections, our internal projections going forward.
And of course, we are also looking at possibilities or opportunities to perhaps take some of the debt out with different kinds of financing options. So having said that I think that in terms of timing going forward, we are probably between three and six weeks away from a more permanent solution to this situation.
Ben Nolan - Jefferies & Co
Okay. So, even if it were to extend past the April 1 deadline that shouldn't be a problem?
Fred Lepere
That is right. Yes.
Ben Nolan - Jefferies & Co
Okay. All right, and then just lastly as it relates to kind of how your business is going, first, is it fair to assume that things have continued to progress both from a volume perspective and then also from a pricing perspective into the first quarter from what they were in the fourth quarter, and then also maybe if you could just give some color as to specific areas that you are seeing the strength coming from, be it steel cargos or volumes into South America from Asia, and you know, along will that do you think maybe there will be any impact from the earthquake in Chile?
Joseph Royce
Well, the first part of your question is yes. We are starting to see a positive trend starting up really with the last quarter of 2009, and it is continuing to carry forward into 2010. Our south fleet is really separated half bulk carriers, and half tweendeckers. On the bulk carrier front, and there is very, very solid market right now. And we are involved in that market, and that is good news.
And on the multipurpose side of the business, and this is really the part that for a good part of last year lagged behind the general overall recovery, started on the bulk side, is now starting to get more than balance. I think one of the things was when the -- due to the time lag and problems with the water project cargos and general cargo and steel parcels, the reluctance of many of the charters in 2009, this has basically ended.
I just was in South America last week, in Peru and Ecuador, and market, for example in Peru is booming. We are getting the same situation in Brazil. The internal market in Brazil is extremely strong, and it is starting to know, we are seeing this on our cargo volumes, as well as our pricing, as certainly as compared to 2009. There is a sense of confidence in South America, which is being now reflected. We have more stability in our steel parcel service out of the east coast of South America into the West Coast.
I think one of the things there that is positive is the fact that the internal demand in Brazil is now giving us an opportunity to take cargos, (inaudible) cargos into Brazil, and of course the export business is getting back to what we would call our traditional basis. Now on the cargos coming out of Asia, there has been an improvement there again starting in the last quarter of 2009.
Again, the ships right now improve pricing and improve demand, and we expect to really be back pretty much on full schedules on the multipurpose tweendecker side in the second quarter of this year. Now regarding Chile’s earthquake, again being down there and of course Peru being the neighbor that was on everyone's discussion about this tragedy in Chile. And the feeling is and this stated by the new president that was inaugurated last week that it will take about 3 to 4 years to bring Chile back.
In the southern areas in Talcahuano and Concepcion terrible destruction down there. And of course, they will need all the different types of construction materials and everything else that is needed to rebuild that part of the country. Chile is dedicated to it. There is no doubt about it. What we are seeing initially, literally in the days following the earthquake, with steel requirements coming out of Brazil. And we expect that to continue as the country stabilizes and can now focus on what their needs and requirement are going forward.
But we see this increasing the demand going into Chile, and that is from all parts of the world, especially from the Far East.
Ben Nolan - Jefferies & Co
Okay, great. And that is it. I appreciate it guys.
Joseph Royce
You are welcome.
Operator
(Operator instructions). You have a question from the line of Bill Nasgovitz with Heartland Advisors. Please proceed.
Bill Nasgovitz - Heartland Advisors
Yes, good morning, and thanks for taking my question. Nice to hear that business is picking up, pricing is picking up. I was wondering if you can provide some color on just the supply for I guess smaller vessels and tweendeckers. You are in a niche space, what are you seeing from I guess the competitors out there in terms of the order book for those particular segments?
Joseph Royce
Well, on the smaller ships, and I'm not quite sure how you define this, but I will define it my way and if I'm not right, please correct me. We have these, what we would call in our tweendecker space, the small tweendecks from about 15,000 to 20,000 total bed weight, pretty much mirrors the tweendeckers from about 19,000 to 20,000 up to about 24,000 total bed weight. This is the oldest fleet in the dry cargo area.
The vast majority of these ships, and I am going to say anywhere up to 75% plus is in excess of 20 years of age. Now on the new building front, there is very little new buildings of these type ships. The vast majority of the ships that have been built today, are being built by end-users like ourselves and a few other companies. This is not a speculative market, for example, like bulk carrier, handysize all the way up to capesize.
So we feel that as we look forward on these bigger ships, which is our market, we are in a very, very good position regarding the world fleet. The other side of the coin is that our fleet technically is in very strong physical condition, because we have from day one maintained these tweendeckers, as well as some of our bulk carriers, but especially our tweendeckers for useful trading life up until their 35 years of age.
And we see as the market continues to improve, and we see the further movement and demand in the project area, for example, as well as the steel parcels in general cargo that these ships will definitely be needed not only tomorrow, but well into the future, because they are just not replacing these ships as compared to other types.
Bill Nasgovitz - Heartland Advisors
And thank you for that, what is the average age of your fleet today?
Joseph Royce
23.
Bill Nasgovitz - Heartland Advisors
23 years, and when the additional -- someone asked this question earlier. I guess it was the previous caller, question that you gave some color on the payment for the new builds, can you just give an update on when the remaining five is it arrive over the course of 2010 or some go into 2011?
Joseph Royce
We expect that the second ship, the Dakota Princess will deliver to us at the end of this month.
Bill Nasgovitz - Heartland Advisors
Okay.
Joseph Royce
Then the Montork Maiden [ph], which is the third ship somewhere midsummer. The Houma Belle, which is the fourth ship probably in the late fall, November area, and two remaining ships in the first quarter of 2011. But let me also add if I may, on the age profile.
Bill Nasgovitz - Heartland Advisors
Yes.
Joseph Royce
I mentioned the age profile of the tweendeckers. But I think it is also important for people to understand that the age profile of the handysize bulk carriers, and the handymax bulk carriers, not the superhandymax, but the handymax bulk carrier. Every year of the ship or 50% of this fleet, more or less is in excess of 20 years of age.
And again this handysized bulk carrier fleet will have a net reduction going forward versus the new buildings that are there and the ships that are being scrapped. So, as opposed to capesizes and superhandymaxes and panamaxes, both the handysized bulk carriers as well as the larger tweendeckers are in a very good position fleet wise, and the order [ph] that utilize these ships on a daily basis. I'm not surprised when a ship in excess of 20 years comes up because that is basically every other ship in the bulk carrier fleet, and almost three quarters plus ships in the tweendecker fleet.
Bill Nasgovitz - Heartland Advisors
Thanks for your time.
Fred Lepere
Thank you.
Joseph Royce
Thank you.
Operator
(Operator instructions). At this time there are no further audio questions. I would now like to turn the call over to Mr. Joseph Royce foreclosing remarks.
Joseph Royce
Well, 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 first quarter 2010 results. I would like to wish everybody a nice day. Bye-bye.
Operator
Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day.
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