TBS International plc Q1 2010 Earnings Call Transcript

| About: TBS International (TBSI)

TBS International plc (NASDAQ:TBSI)

Q1 2010 Earnings Call

May 10, 2010; 10:00 am ET

Executives

Joseph Royce - Chairman, President & Chief Executive Officer

Fred Lepere - Executive Vice President & Chief Financial Officer

Analysts

Ben Nolan - Jefferies

Operator

Thank you for standing by ladies and gentlemen, and welcome to the TBS International first quarter ended March 31, 2010 earnings 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.

The conference call will also be webcast live, audio and slideshow on the company’s website, www.tbsship.com, by clicking on the webcast banner. I must advice you that this conference is being recorded today Monday, May 10, 2010.

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

Fred Lepere

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 first quarter ended March 31, 2010.

This morning we issued a press release before the market opened in New York, with financial and operational information for the first quarter ended March 31, 2010. 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 212-661-7566. We’ll also post a 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 webcast link. Note that the slides are user controlled.

For 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 filings 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.

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 Internationals conference call, for the results of the first quarter ended March 31, 2010. With the leadership of our Chief Financial Officer, Fred Lepere, TBS concluded loan modification agreements with its lenders.

I want to thank our lenders for their unwavering support of TBS throughout this economic and financial crisis. We have received a sequential series of waivers of technical covenants to avoid loan defaults. Throughout this period, TBS made all principal and interest payments timely.

Recognizing the need for a permanent solution, our lenders work diligently with TBS to restructure our financing facilities. This restructuring is seen in a unanimous approval of our lenders, including each and every bank in our various bank syndicates without dissent.

Now we begin our presentation with slide number two; TBS today positioned for recovery. TBS is making positive progress, and emerging from the economic crisis, and financial delays that has affected world trade.

Our handymax and handysize bulk carriers are participating in the improving freight rates for the carriage of bulk cargos, and multipurpose tweendeckers showed a marked improvement in quarter one 2010, in both cargo volumes and fight rates, as our traditional customer base increased exports of steel, liner, project and general cargoes.

We are optimistic that the volume of finished cargos we carry will continue to improve throughout 2010, and that TBS would return to a more balanced rotation of its tweendecker fleet in the second half of this year.

In quarter one 2010 top line revenues, averaged daily Time Charter Equivalent or TCE, voyage earnings and EBITDA showed marked improvements over quarter one 2010. Commencing in quarter three 2009, we have also experienced steady quarterly improvement in top line revenues, average daily TCE and EBITDA.

Our business plan is to capitalize on the alliances TBS built during the past year to expand the TBS brand and the five star service in Latin America and Africa, which we view as emerging continents, within emerging and newer resources that will sustain by the growth for decades to come.

In March 2010 we took delivery of the M/V Dakota Princess, our second new building multipurpose tweendecker, and it has furthered out fleet to 49 vessels. This was another significant milestone for our company, and was part of our long-term fleet modernization and expansion program.

M/V Dakota Princess is the second in the series of six larger multipurpose tweendecker vessels, specifically designed by the TBS team with the objective to increase our operational flexibility, optimize our cargo transportation and support the requirements of our customer base.

Taking into account our increasing cargo volumes, inward fleet and improving freight rates, we have a positive outlook for the rest of the year ahead, and believe that we are well positioned to take advantage of the improved market condition as a result of the continued global recovery.

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

Ferd Lepere

Thank you Joe. We should all now be on slide number three. As a testimony to our good and strong relationships with our banks, we are pleased to report that we have successfully restructured our syndicated credit facilities led by Bank of America, The Royal Bank of Scotland, and DVB Group Merchant Bank, as well as our individual credit facilities with AIG Commercial Equipment, Credit Suisse, Berenberg Bank and Commerzbank.

These amendments modify the financial covenants and other terms of the credit facilities, including covenants relating to TBS’s collateral coverage, consolidated leverage ratio, consolidated fixed interest coverage ratio, consolidated fixed charge coverage ratio, and minimum cash balance. TBS currently expects to be in compliance with all financial covenants and other terms of the amended credit facilities through maturity.

Accordingly, the long-term portion of the company's outstanding debt at March 31, 2010 was classified as long-term debt on our consolidated balance sheet, thus remediating the uncertainty regarding TBS's ability to fulfill its financial commitments as they become due, which uncertainty was the condition that raised substantial doubt about TBS's ability to continue as a growing concern. We have filed and having placed 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 four. This slide summarizes our first quarter 2010 operating and financial highlights. For the first quarter ended March 31, 2010, total revenues were $101.1 million, an increase of 41% over the same period in 2009. Voyage revenues for the three months ended March 31, 2010, was $74.4 million, an increase of 14% from the $64.5 million during the same period in 2009.

Time Charter revenues for the first quarter of 2010 increased by $16.7 million, to $22.9 million from $6.2 million for the three months ended March 31, 2009. Our net loss for the first quarter 2010 was $7.8 million, an improvement of 63% as compared to the net loss of $21.3 million during the same period last year.

Earnings per share on a basic and diluted basis for the first quarter of 2010 was a loss of $0.26, as compared to the loss of $0.71 for first quarter of last year. EBITDA, which is a non-GAAP measure, was $23.2 million for the first quarter of 2010, an increase of $18.3 million over the same period in 2009. Our reconciliation of EBITDA is provided in the appendix of this presentation.

Please note that our G&A expense includes a $2.5 million non-cash stock bonus approval in the first quarter of 2010, which was not present in the first quarter of 2009 G&A. During the first quarter we drydocked two vessels for 45 drydocking days, and two vessel that didn’t fit into the drydocking in the fourth quarter of 2009 continued their drydocking into this quarter for three week days.

Please now turn to slide five. This slide demonstrates the revenue metrics of our business for the first quarter of 2010. We begin with our voyage business. During the first quarter of 2010 we operated 31 vessels in our Freight Voyage business, and had 2,804 Freight Voyage days, as compared to 35 vessels and 3,116 Freight Voyage days in Q1, 2009.

Our Daily Voyage Time Charter Equivalent was $14,511, an increase of 24% compared to last year’s first quarter. As you can see on this slide, during the first quarter of 2010, we have a 24% increase in the total tons of cargo ship, and a 7% of increase 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 $16,299 in the first quarter of 2010, an increase of $10,352 from the $5,947 during the same period of 2009, indicative of the recent improvement in the shipping markets. We operated 15 vessels in this business, a total of 1,337 days, as compared to ten vessels for 887 days in Q1 2009.

Please now turn to slide six. This slide provides the highlights of consolidated balance sheet. As of March 31, 2010, our net debt to capitalization ratio stood at 36.3%. Our cash balance at the end of March 2010 was $37.8 million, plus $6.2 million in restricted cash that will be used to make payments for the yard as construction milestones are reached in our new bidding program.

We had 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 to questions from our investors. Operator, please open the floor for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first quarter comes from Ben Nolan - Jefferies.

Ben Nolan - Jefferies

I had just a couple of questions; number one, it looks like the mix on the fright business, bulk versus parcel, obviously there was a lot more in the way of bulk growth versus the parcel growth, both of which grew, but is it fair to model that going forward where I guess its 60% or so is regular cargo versus 40% bulk or something like that?

Joseph Royce

Well, I think one of the things that has affected us all along, and which is changing in a positive way has been the time lag associated with the recovery of bulk cargo versus general cargo, steel parcels and project cargo. We are starting to see a very solid increase in demand, as well as cargo carry in the tweendecker space, which it carries these type of cargos.

I think that the road, and where we are going with this is balanced, and with this increase going back to pre-crisis levels and pre-crisis scheduling, we see the company, we are now back in balance, especially in the end of the second quarter, than the company has been since the crisis started.

As a result of this we see from our customers, increased demand, we see more projects coming, the economy is certain that we are growing in the emerging markets and we look at Latin America as an example; the demand is solid, a lot of projects are now being floated which we’re involved in.

So I feel a little optimistic that as we look forward, that we’ll see an increase in the steel parcels business, general cargo and project cargo. That is really the backbone of our multipurpose tweendecker fleet.

Ben Nolan - Jefferies

Okay great; and keeping with that I guess, would it be fair to assume maybe in the second half of the year as it’s contract rollover and so forth, that you could see pricing maybe on a TCE basis being more equivalent with what you are seeing on the charter out vessels?

Joseph Royce

Yes, historically the way it works is that the volumes come first and the rates follow, and this is how its playing out, and as more and more contracts come to the surface, and people have been reluctant to show contracts right after the crisis started.

But we see now people are taking what I would call a much traditional view of their businesses, people are willing now to discuss contracts, pretty much how people did their business prior to the crisis, and with more confidence, more customer confidence, we feel that this will translate in improved rates, especially in our multipurpose side of the business.

Ben Nolan - Jefferies

Okay great, and then one more just a general kind of question, and I had just a couple of book keeping type things, but could you just remind me again what you’re modeling out in terms of how long you plan to use both your tweendeckers and your dry bulks, and at what age you intend to face this other fleet?

Joseph Royce

Well, we will for our tank purposes, we have all these used thirty years of age. The reality of our business, the demand on the type of ships, the supply and demand of these ships in the market, and our business plan, and the investments that we have made in our ships, putting more steerings in the ships and our professional maintenance of the ships, that we feel that the realistic level for the majority of our fleet will be probably in the 32 or 33 area for the bulk areas, and we are looking certainly up to 35 years in the tweendeckers.

Ben Nolan - Jefferies

Okay great. Then just the two book keeping questions; one, on the G&A is what we saw in this first quarter a pretty good run rate for what we should see going forward, and then the second part of that is associated with the new credit restructuring and so forth. Is that in anyway going to impact the P&L that it didn’t previously?

Joseph Royce

The first part of your question, the G&A, I would say with the exception of about $300,000 worth of professional fees related to the re-domestication that will not prevail through the rest of the year, I think what you see in the first quarter is a good run rate, and on the second part of your question, I’m sorry Ben, can you just repeat that question?

Ben Nolan - Jefferies

Yes, just in term of the new credit restructuring that you guys made.

Joseph Royce

We are going to have higher interest rates related to the restructuring Ben or I should say related to these amendments, and that was of course flowing through the interest expense line with no impact on EBITDA, but obviously an impact on net income.

Operator

(Operator Instructions) There are no further questions at this time. I would now like to turn the presentation back over to Mr. Royce for closing 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 second quarter and six months 2010 results; and I would like to wish everybody a nice day. Thank you. Bye-bye.

Operator

Ladies and gentlemen, the replace of this call can be accessed at 188-286-8010. We thank you for your participation in today’s conference. This concludes your presentation. You may now disconnect and have a good day.

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