Executives
Fred Lepere - SVP & CFO
Joseph Royce - President & CEO
Analysts
Ben Nolan - Jefferies
Will Nasgovitz - Heartland Fund
TBS International plc. (TBSI) Q2 2010 Earnings Call August 6, 2010 8:30 AM ET
Operator
Thank you for standing by ladies and gentlemen and welcome to the TBS International Second Quarter and six months ended June 30th 2010 Earnings Conference Call. We have with us Mr. Joseph E. Royce; Chairman, President and CEO and Mr. Fred Lepere, Senior Executive Vice President and Chief Financial Officer of the company. (Operator Instructions). The conference call will also be webcast live, audio and slide show on the Company's website at www.tbsship.com, by clicking on the webcast banner. I must advice you that this conference is being recorded today, Friday August 6th, 2010.
We will 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 Interrelations quarterly conference call. The purpose of today's call is to discus the results of TBS's second quarter and six months ended June 30th, 2010.
This morning we issued a press release before the market opened in New York, with financial and operational information for the second quarter and six months ended June 30th, 2010. If you have not received this release, you may log on to our website at www.tbsship.com and navigate to the investor relations page or you can call Capital Inc 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 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. So 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 1. This slide refers the 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 International conference call for the results of the second quarter and six months ended June 30, 2010. Now we begin our presentation with slide number two, TBS today decision for the recovery.
During the first two months of the second quarter we saw the improvement in trade rates on the transportation of bulk and breakbulk cargoes continue from the first quarter.
Demand for the carriage of aggregate sugar, salt and grain cargos increased. On our multipurpose tweendecker business we saw both volumes and freight rates improved as traditional customers increased to export of steel line project and general cargo which helped to reinstate operational and rotational balance.
Trade from Asia to South America experienced strong cargo volumes with oil vessels operating on the route failed to capacity. Despite the reduced iron ore imports by China we experience strong exports of minerals and metals from the West Coast to South America to Asia.
Commencing in mid-May the baltic dry index declined from its value of 3939 to 1700 representing about 57% drop.
This regression in a dry bulk market freight rates impacted the TBS fleet especially our bulk carriers and the impact is continuing in quarter three 2010. However, market freight rates in our sector appear to have stabilized in recent weeks.
Our business plan is to capitalize on the alliances, TBS built during the past year to expand the TBS brand and five star service in Latin America and Africa which we view as emerging continents, rich in energy and mineral resources which will sustain viable growth for the future.
We have developed long-term relationships with well established industrial shippers in diverse markets that include mining, steel manufacturing, heavy industry, industrial equipment and construction.
We believe that our business model allows us to increase the value of our service to our customers as we all are well equipped to meet their challenging demands and shorter delivery windows.
Our joint venture subsidiary ROCK-STAR recently obtained an operational license in Brazil to divide domestic shipping services. This Brazilian flag shipping company will concentrate on the movement of breakbulk, bulk parcels, heavy lift, general and project cargos along the coast line of Brazil and the Amazon River Basin.
We own 70% of this joint venture, Log Star initial fleet of three vessels will be operated under a three year bareboat charter. We are on track with our goal to modernize and expand our fleet to our new building program of six multipurpose tweendeck vessels of which we have taken delivery of our first two vessels.
We sold our smallest handysize bulk carrier, the motor vessel Savannah Belle in July. We believe that when market conditions begin to improve, TBS will be well positioned to take advantage of future growth.
Now I'd like to turn the floor over to Fred Lepere, our Senior Executive Vice President and Chief Financial Officer.
Fred Lepere
Thank you Joe. We should now all be on slide number three. This slide summarizes our second quarter 2010 operating and financial highlights. For the second quarter ended June 30th 2010, total revenues were $111.2 million, an increase of 54% over the same period in 2009. Voyage revenues for three months ended June 30th 2010 were $70.6 million, an increase of 18% from the $59.7 million during the same period in 2009.
Time charter revenues for the second quarter 2010 increased by 25.5 million to 37.7 million from $12. million for the three months ended June 30th of '09. Our net loss for the second quarter 2010 was $9.7 million, after non controlling interests, an improvement of 43% as compared to a net loss of $16.9 million during the same period last year.
Earnings per share, on a basic diluted basis for the second quarter 2010 was a loss of $0.32, as compared to a loss of $0.57 for the second quarter of last year. Net loss and earnings per share attributable to TBS International PLC for the second quarter include a $5.2 million loss on the sale of the motor vessel Savannah Belle and a $3.3 million non cash equity compensation grant to employees.
Together these items represent $0.28 of the $0.32 loss per share for the second quarter. EBITDA which is a non-GAAP measure was $22.2 million for the second quarter of 2010, an increase of $11 million over the same period in 2009. A reconciliation of EBITDA is provided in the appendix of this presentation. During the second quarter we dried dock five vessels for 110 dry docking days as compared to the 136 dry docking days in the second quarter of 2009.
Please now turn to slide number four. This slide demonstrates the revenue metrics of our business for the second quarter of 2010. We begin with our voyage business. During the second quarter of 2010 we operated 28 vessels in our freight voyage business and had 2556 freight voyage days as compared to 33 vessels and 2982 freight voyage days in the second quarter of 2009. Our daily average voyage time charter equivalent was $14,463, an increase of 28% compared to last year's second quarter.
As you can see on this slide, during the second quarter of 2010 we have a 3% decrease in the total tones of cargo ships and a 15% decrease in the tones of cargo ships excluding aggregates. This decrease is mainly due to a decrease in agricultural and bulk cargos transported.
We now turn to our time charter revenue metrics on the same slide. Our daily average time charter equivalent for this business was $18,532 a day in the second quarter of 2010, an increase of $8,890 from the $9,642 per day during the same period of 2009, indicative of the improvement in the shipping markets compared to last year. We operated 20 vessels in this business for a total of 1,838 days as compared to 13 vessels for 1,140 days in the second quarter of 2009.
Slide 5 and 6 depict our operating and financial highlights as well as key metrics for the six months of 2010. These slides are self-explanatory and the information is presented in more detail in our second quarter in six months 2010 earnings press release we issued earlier today as well as in our 10-Q for the period. I'll answer any questions you may have during the question-and-answer-session of this conference call.
We have now reached the end of our presentation. The slides in the appendix provide EBITDA reconciliation and additional information on our alliances, business model, trade routes, fleets and global network. Please take a look at them at our 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
(Operators Instruction). And your first question comes from the line of Ben Nolan with Jefferies. Please proceed.
Ben Nolan - Jefferies
Hi, good morning guys.
Fred Lepere
Hey, Ben, how are you?
Joseph Royce
Good morning.
Ben Nolan - Jefferies
Good, good. How are you guys?
Joseph Royce
Good, thank you.
Ben Nolan - Jefferies
Yeah, I had a couple of questions for you. The first is I noticed in the fleet breakout that you guys had two chartered in vessels. Could you -- was that just sort of to meet one-off needs or is that more indicative of underlying demand or maybe talk to that a little bit?
Fred Lepere
I would look at those, Ben, as just positioning issues to meet demand on a short-term one-off basis. I the fleets as it stands right now is sufficient for the cargo volumes that we're seeing. So I wouldn't anticipate any serious growth in Time Charter and tonnage going forward.
Ben Nolan - Jefferies
Okay, okay that's good. And sort of related to that, the number of vessels that you guys had in the Charter Out business increased by what -- 7.25 or so. Again was that just more opportunistic, had to do with vessel positioning or not or what was behind that increase?
Joseph Royce
It was a combination of both. We took opportunities in the marketplace and part of our repositioning ships especially coming out from Egypt, when we these ships out to dry dock we usually Time Charter the ships out to Asia on our baltics. They dry dock and then we Time Charter the ships back into the Atlantic to reposition them.
Ben Nolan - Jefferies
Okay, great. And then another quick one, the sale of the Savannah Belle, is that something maybe that we could see with a few more of the other older drive off vessels going forward or was that just kind of -- should be viewed as one-off?
Joseph Royce
It's a one-off sale.
Ben Nolan - Jefferies
Okay and then just two more quick ones. With respect to you guys have -- with respect to the (inaudible) vessels that you guys have built and now have two in the water, how have those been performing and are you able to fully utilize those? first of all, given there larger size and then secondarily are they earning a premium to -- the other smaller tweendeckers.
Joseph Royce
First of all, they're physically performing well, they are very solid built ships and performing in the market, they are performing quiet well and this really goes to pretty much wants happening now -- multipurpose tweendecker sector as a whole.
This really has been a drag on the company since the start of the financial crisis and as we mentioned in our last earnings call, we felt that in the second quarter we would start to see our scheduling in our cargo volumes especially out of Asia, improve and get back to what we feel were at pre-crisis levels and we feel that with that.
And just to give you an idea on the Dakota Princess, and again these are larger ships than we have traditionally had in the trade. She's now completing her first round voyage and the ship is already fully booked out and she's still about two weeks away from Asia to discharge the copper and mineral parcels.
So, we are starting to see improved cargo volumes, we are starting to see these ships fit into our schedules and what we're also starting to see is the ability to reduce the number of port calls that we experienced with the initial two round voyages of the first ship the Rockaway Belle and as time goes on we'll be able to build more efficiencies into these ships and we feel that net earning wise they are outperforming the market.
We've have had indications from different people that would look at these ships on long term time charter and these ships are really out performing what those indicated numbers from others on time charter would be. So, we're very happy with the ships and we think that as we felt from day one, they'll be a positive addition to our fleet.
We knew our tweendeckers gives our customers confidence in the future -- in our commitment to the future and they will earn positive money from today going forward.
Ben Nolan - Jefferies
Okay great and that kind of leads into my last question. You said that you have a -- or basically fully loaded coming from Asia back to South America, first with that, is that also a company with and increased level of pricing power and then secondarily maybe could you speak to the state of market conditions within South America and what your hearing from your customers with respect to there demand going forward and there confidence in the market and maybe target any areas of specific strength or areas that you think could show potential opportunity?
Joseph Royce
Well, we -- as we've said we've always felt that there would have been a time lag from the recovery on the bulk side with the steel parcel and project and general cargo side and now we've seen this take a real solid step forward and what's driving this is the strength in the emerging market, especially Latin America.
From the West Cost to the East Cost, I can tell you to for example countries like Colombia and Peru, the economies are strong, the demand is there. Huge projects, projects that maybe right after the crisis started was suspended are now back into play. We are actually carrying the physical components of these projects.
Huge investment in the mineral section in Peru, gas pipelines etc. Chile which has been a strong economy pretty much has even more demand now with their commitment restructuring the Talcahuano Concepcion area which was devastated by the earthquake down there.
We had for example 260 ships that loaded three fab houses, three fab schools from the states down to and Mexico down to Chile did round voyages, we carried more steel into Chile in this last quarter than pretty much we sent the entire past year.
Again these economies are very strong on the demand inbound, the other part of that us that Brazil itself, if Brazil is going in access of 7% this year.
Huge amount of projects, huge amount of investment internally. I think within in South America, within infrastructure build out and there another part that we feel that has assisted and assisted the steel parcel business is that since the nationalization of the Venezuelan steel company (inaudible) which was a major customer of ours and really fed into the different countries especially in the West Coast to South America if this GAAP is now part of it is now been supply out of Asia and we continue to see this serious growing.
Now on the export side minerals and metals especially with copper is really leading the exports into Asia especially around China. We see today that copper is at a very, very strong levels and we this demand continuing and we have always had a very, very strong position in that market.
So, for the first time since the crisis we feel comfortable that our inbound general cargo, project cargo steel parcel services is now in sink with our outbound metal and mineral concentrate parcels and we feel that the tweendecks now for the first time in a very solid position and also what you can add to that what we are doing now out of Brazil and the steel parcels going to the West Coast. We feel that we are in sink with that tweendeck fleet.
Ben Nolan - Jefferies
Okay great that's it for me. Thanks guys.
Joseph Royce
Thanks Den.
Operator
(Operator Instructions). And your next question comes from the line of Will Nasgovitz with Heartland Fund. Please proceed.
Will Nasgovitz - Heartland Fund
Yeah, good morning. Thanks for taking my question. If you comment on what your CapEx budget is going to look like for the remainder of the year.
Fred Lepere
We have not actually made that public information in the past. Usually what we do is we point to the dry docking schedule and just generally we have allocated about $0.5 million per ship for other than dry docking.
Will Nasgovitz - Heartland Fund
Okay, that's good to know. And then could you just comment on some of the other, I guess aren’t there really any competitors but dry bulk companies that reported have talked quite a bit about the slippage in the order book and it just appears from looking into the slides that there has been a fair amount of slippage in the smaller size vessels out there, the Supramax and Handymax's et cetera. Could you care to just provide any perspective or additional color on the order book?
Joseph Royce
Well in our section, which is the multipurpose tweendeckers and the handysize Handymax, there has been slippage and its been pretty much all along and I think one of the reasons outside of the financial side is the fact that a lot of the ships were scheduled to be built in China, scheduled to be built in Greenfield yards and of course at that time, when these orders were made, a lot of these orders were made in the height of the boom.
People I think were very optimistic. They were very optimistic in the fact that these yards which were basically start up operations could not only get the yards started but actually build ships and basically deliver ships on schedule. I think that was optimistic.
And I also think that a lot of the yards and we experienced this ourselves, is that the yard is no longer working around the clock and I think its got many reasons, a lot of it is internal reasons in China. They want to space these deliveries so all of a sudden they don't have yards with limited work or a limited order book. So I think you put all these into play, is one of the main reasons that you do have slippage and will continue to have slippage.
Will Nasgovitz - Heartland Fund
I'm not sure if this would have really applied to you guys but I guess the export band of wheat out of Russia, we've seen wheat prices here accelerate pretty significantly. Do you guys, would you benefit from increased cargoes out of U.S. to Asia in wheat or is that not really in your sweet spot?
Joseph Royce
Everybody is going to benefit by this. Again, its still early in the information coming out but I've from this side, the worst drop that they've had in the last 100 years and I can only tell you from my experience back in the 70s, when the Russians first came into the market for a substantial amount of wheat, it had a dramatic impact on the overall world dry cargo shipping market. This is in my opinion a significant event and it has to be played out but the Russians, the fact that they have admitted to such a terrible catastrophe show signs that its going to disrupt the entire market, the wheat and agricultural market and this should have a positive benefit for the shipping market.
Will Nasgovitz - Heartland Fund
All right, appreciate that color. One last thing here. So in the court you had the $5 million non cash charge for the sale of the Savannah Belle and then a $3 million non cash equity compensation. So together it was $0.28. And in your EBITDA reconciliation, I mean, for your bank, for your facility would be adding those back to EBITDA that kind of get a real true EBITDA numbers that how they will look at it?
Joseph Royce
Yeah, that's precisely it. Yeah, very well staged I couldn't say better myself that's exactly what will happen. The gain or loss and sale of the vessels and is carved out of the EBITDA as is the non-cash stock compensation.
Will Nasgovitz - Heartland Fund
Well, thanks very much guys, best luck on third quarter here.
Joseph Royce
Thank you very much.
Operator
(Operators Instruction). And no further questions at this time, I would now like to turn the presentation back to Mr. Royce for closing remarks.
Joseph Royce
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 third quarter and nine months 2010 results; and I would like to wish everybody a nice day. Bye-bye.
Operator
Ladies and gentlemen, the replays of this call can be accessed at 1-888-286-8010. We thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.
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