Box Ships' (TEU) CEO Michael Bodouroglou on Q2 2014 Results - Earnings Call Transcript

Sep. 3.14 | About: Box Ships (TEU)

Box Ships Inc (NYSE:TEU)

Q2 2014 Earnings Conference Call

September 03, 2014 8:00 AM ET

Executives

Michael Mason – IR, Allen & Caron Inc.

Robert Perri - Chief Financial Officer

Michael Bodouroglou - Chairman and Chief Executive Officer

Analysts

Harold Weber - Wells Fargo

Operator

Good day and welcome to the Box Ships Second Quarter 2014 Results Conference Call. All participants will be in a listen-only mode. (Operator Instructions). After today’s presentation there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Michael Mason of Allen & Caron Investor Relations. Please go ahead.

Mike Mason

Thanks, Emily. Good morning and welcome to the Box Ships investor conference call to discuss the financial results for the second quarter of 2014. I am Mike Mason of Allen & Caron Investor Relations.

Before we start the call, there are a couple of items I need to cover. Many of you received a copy of the press release. It was released after the close of the market last night on September 2nd at 4:01 PM Eastern Time. If you did not receive a copy of the release, it is posted on Box Ships Web site and in the clients section of our Web site. You may call our office in New York at 212-691-8087 and we will email it to you right away. It is also posted on Yahoo Finance and other numerous Internet sites.

The call is being broadcast live over the Internet and may be accessed on the Company’s Web site at www.box-ships.com. A replay of the call will be available through September 10 and may be accessed from North America by calling 877-870-5176 and entering conference number 10051163. International callers should dial 858-384-5517. A replay of the webcast will be available immediately following this call and will continue for 30 days.

Certain statements in this conference call may constitute forward-looking statements. Actual results could differ materially from those discussed in the call. Please refer to the complete cautionary statement regarding forward-looking statements in the press release dated September 2, 2014 which can be found on the Company’s Web site and also filed with the SEC. The Company will make a presentation on the earnings results and then open the call to questions.

I would now like to turn the call over to Mr. Robert Perri, Chief Financial Officer of Box Ships. Good afternoon, Robert.

Robert Perri

Good morning, Michael, and good morning ladies and gentlemen, and thank you for joining us on today’s conference call. Let me run through the agenda briefly before I get started. First, we will discuss our second quarter 2014 highlights and recent developments, followed by a brief update on the Company. Then we will give you an update on the industry as a whole and a picture of the current shipping market, and finish with a more detailed financial update.

Joining me on the call today is our Chairman and CEO, Michael Bodouroglou, and he will be available for questions-and-answer session after I finish our prepared remarks.

Please turn to Slide number 4. Our adjusted time charter revenues during the quarter was $14.4 million for our nine vessels, while our adjusted EBITDA was $7.9 million and we reported adjusted net income of $2.3 million. In July 2014, we announced our agreement with Commerzbank to settle the net outstanding amount of 21.5 million loan by repaying 15 million. The gain from this transaction of approximately 6 million will be reflected in our third quarter 2014 results.

On the chartering front, we extended the charter of the MSC Emma for a further period of nine months. We extended the charters for the CMA CGM Kingfish and the CMA CGM Marlin each for a further period of 12 months at an improved rate compared to the previous extensions earlier this year and in addition we extended the charter of the Box Trader for a further period until the earliest of May or latest August of 2015 at a slightly improved rate.

On Slide 5, you can see our current operating fleet, the duration of our charters and their expiration dates. Our fleet consists of nine containerships with an aggregate carrying capacity of 43,925 TEU at an average age of 9.6 years, which compares favorably to the average age of 10.8 years for the entire containership industry according to Clarkson’s Research. Following the extensions of the four charters I just mentioned, the average remaining charter duration is 10 months and all of our charters are well known container liner operators that have been in business for many decades and value our operations.

As of today, the market for Panamax vessels remains challenging, although there are some signs of a slight improvement. We plan to continue to charter our vessels for shorter term periods maybe for no more than a few months when their current employment ends later this year and wait for the market to recover before fixing for longer periods.

On Slide 6, we would like to highlight the Company remains focused on strengthening our balance sheet and maintaining a manageable level of leverage. Currently our total debt is $142 million, while our current cash position is $13 million, which means our net debt is $129 million representing a moderate 34% net debt to total capitalization with straight line repayment profile.

On this slide, you can see the benefit of the repayment we made to Commerzbank. By paying 15 million we paid off 21.5 million in debt and have reduced our quarterly repayments by $800,000. By repaying the debt we have additional flexibility of having an encumbered vessel that is currently running above its cash flow breakeven rate that we can borrow against to provide additional liquidity for the Company if necessary.

Now, I would like to give you a brief update on the fundamentals of the containership market. On Slide 7, the top right graph depicts the Shanghai Containerized Freight Index, which is an indication of the costs to ship a container, while the top right depicts the time charter rates for 3,500 TEU and 4,400 TEU vessels.

During the second quarter of 2014, the containership market has experienced slightly higher average freight rates than in the same period of 2013 and charter rates improved slightly as well. Overall container demand increased year-over-year but there has been no clear signs of a sustainable rebound yet as supply continues to outpace demand. Although the good news is that ordering of new vessels has finally slowed and there has been no ordering for mid-size vessels the mid-size vessels continue to be affected by the cascading effect as many have been moved out of the main trade routes that are being utilized in some of the minor trade routes.

What we have seen is increased demand for 5,000 TEU vessels into West Africa as they push out smaller 2,500 and below TEU vessels, which has helped the rates for these vessels improve to the $9,000 to $10,000 level we see today. Vessels in lay-up remain at low levels and the total number of vessels in lay-up declined to 1.2% of the current fleet compared to an average of 3.5% of the total fleet laid up earlier in 2014. In addition, vessels values may have bottomed but remained at very depressed levels for as long as charter rates remain weak and there remains uncertainty in global market.

Please turn to Slide number 8. During the second quarter of 2014 our revenues decreased by approximately 24%, mainly due to lower charter rates of Box Queen, the Kingfish and the Marlin. This translated into adjusted average time charter equivalent rate or TCE in the second quarter of 2014 of $16,843, a decline from the time charter equivalent rate of $22,506 recorded in the second quarter of 2013. Our adjusted EBITDA decreased year-over-year to 7.9 million from 11.4 million in the year ago period and our adjusted net income for the second quarter of 2014 decreased to 2.3 million from 5.5 million in the year ago period.

In addition, it’s important to note that our amortization of intangibles which is primarily related to the above below market time charters, share based compensation expense and the gain from fair value changes of the warrants that we issued in April 2014 for the second quarter of 2014, were 1.8 million, 0.5 million and 700,000 respectively. When we adjust our EBITDA, net income we back out these expenses due to the non-cash nature.

On Slide 9, you can see our operating performance. During the second quarter of 2014, our cash vessel operating expenses were flat year-over-year at 4.2 million. On average our cash vessel operating expenses for the second quarter were $5,123 per vessel per day compared to $5,134 per vessel per day in the second quarter of 2013. And our total vessel operating expenses or TVOE for the second quarter were slightly increased to $7,211 per day compared to $7,131 per day in the second quarter of 2013. Our adjusted EBITDA for the second quarter of 2014 was 7.9 million or $9,629 per day for an EBITDA margin of 57% and our total debt service for the quarter were 7.5 million.

On Slide 10, in conclusion ladies and gentlemen, despite the slight signs of improvement in rates, the containership market remains challenging. In this respect we are persistently working on further strengthening our balance sheet and improving our liquidity. We are in ongoing discussions with our lenders to approve or amend certain terms of our loan agreements with a view to reduce our cash flow breakeven rates. And finally, we have two vessels coming off-charter during 2013, and since rates remain challenging we will continue to seek shorter term employment until the market shows signs of significant improvement.

With that we can open up the call for questions.

Question-and-Answer Session

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions). Our first question comes from Harold Weber of Wells Fargo. Please go ahead.

Harold Weber - Wells Fargo

My question relates to the over the past, while I have been involved with the Company for a long, long time since you guys went public. And my question is you can be raising money at different times saying you purchased additional couple of ships and the net margin based on the ships being leased on a long-term basis, you had a x margin of 13%, 14%, 15% whatever. Where is that scenario holding out now in the scheme of our big picture?

Robert Perri

Just to clarify you are talking about potential acquisitions or you are talking about the current fleet we have?

Harold Weber - Wells Fargo

Well, current fleet we have. We raised money two, three times already to buy x amount of new vehicle, new vessels, right, saying that they were leased out for x period of time and we had a margin of 12%, 13%, 14% based on the cost and the carrying cost and the leasing rates and so forth. Where is that at this point, based on where we are holding right now, how far behind are we or even on some of the newer deals?

Robert Perri

On the newer deals and the things that we’ve done recently we’ve actually have been, the margins have held up and everything is basically on track with what we said as the ships are still under the same time charters. Those revenues are actually supporting the ships - at this point those revenues and those net earnings is actually supporting the ships that expired last year and this year where the rates have significantly been lower than where we expected them, with the new market where it is. So they’ve actually held up but they’ve been [dragged] [ph] down a bit by the remainder of the fleet as the market has remained weak now for about 5 years.

Harold Weber - Wells Fargo

Yes. So the question part of the additional question is on some of the older vessels where our costs are much high, does it make sense to just get rid of them or to continue on this path just to continue to hope that they are going to breakeven and turn to profit at some point or should we cut and run from some of those older high cost vessels?

Michael Bodouroglou

Well, the thing is that I think it’s important to recognize at which part of the containership cycle we are right now. Right now asset values are at all time lows, I would say at the [stress] [ph] levels and income is also very, very low indeed in some case it’s below breakeven. And frankly the biggest challenge we’ve had is that it is difficult to guess when the situation will be reversed. I have every confidence that this will happen but unfortunately we are not certain, cannot tell when this will happen.

So what we have been doing really in the last few quarters is to ensure that the Company remains liquid for the longest period possible. If you look at our cash flow projections more carefully you will see that unless I mean if you were looking at our cash flow projections, if you called us before and if you called us earlier, you would see that we will be burning in the quarters ahead a lot of our cash and a few quarters later we would have liquidity issues.

So we have been doing a series of movements started two years ago actually with the acquisition of the two OOCL vessels which provides enormous liquidity to the Company now and enable us to honor all our obligations of [fed bankers] [ph] and our lenders. And recently we have just bought out the loan we had with Commerzbank, and this reduces greatly our cash flow breakeven going forward. And this is really the name of the exercise right now for us is to maintain liquidity for as long as possible. So that we would not like actually to sell ships right now and this is not the preferred route that we would like to go because we believe that it would be giving away a lot of potential value, a lot of potential future value for the Company.

So we prefer to restructure loans, make prepayments to the banks et cetera. We now have as Robert mentioned before an unencumbered vessel. So we would like to ensure that the Company remains liquid for as long as possible at least for another two years and we will take it from there. We are always monitoring the market; we are always monitoring the market for possible acquisitions but whatever acquisitions we may look at, we have to make sure that it is cash flow positive for the Company. So that’s where we are.

Harold Weber - Wells Fargo

Do you feel that continuing on this, the strategy that you’ve implemented at this point, at some point is I am hoping in the not too distant future is going to start to yield fruits for us showing the turn in the big picture. And I am sure you are monitoring the situation very well and there are many other companies who are in the same shape and worst. And I am hoping that we are going to be one of the healthy survivors here based on what you have been doing. Are there other potential loans that we can modify, convert; pay off also at an advantageous rate for the Company?

Michael Bodouroglou

Yes, we are. I mean I can tell you that we are in discussions with our lenders but I would not like to disclose any more information, any more specifics at this point because I don’t think this would be for the interest of, this would be serving the interest of the Company. There are things that we should keep.

Harold Weber - Wells Fargo

I can appreciate that. And the idea that we had talked about that you guys were talking before about doing share buybacks, is that going to continue, I hope and continue to pay attention to that and then do this on a basis that it is advantageous to the Company and to us the shareholders you included.

Robert Perri

No, it is something we definitely continue to monitor. And we’ll continue to look at the share buyback program we have in place and whether we expand that or something like that, I think at this stage it will just stay as it is and we will keep monitoring the situation. But it is something we are…

Harold Weber - Wells Fargo

Where are we in the relation to what we had authorized before?

Robert Perri

So far we haven’t really purchased many shares.

Harold Weber - Wells Fargo

Well, now that we have some less restrictive numbers, maybe we could do some of that? I believe when this market turns it’s going to turn rather rapidly, we’re not talking about a whole lot of dough here, especially. We’re talking about very small amounts of money. We can buy like a million shares for, look at the price where we are holding, it’s really insane.

Robert Perri

I mean as I said I don’t want to get too far into it. We are monitoring the situation.

Harold Weber - Wells Fargo

I would love to see you turn here, love to see us get the shares better and come back to some type of a yield which is what this was all about when we started.

Robert Perri

Yes, absolutely.

Harold Weber - Wells Fargo

For myself and for you and our shareholders and I have a lot of clients in this thing for long time and I would like to be able to try and tell them something somewhat hopeful, but I appreciate what you are doing.

Operator

(Operator Instructions). I am showing no further questions. This concludes our question-and-answer session. I would like to turn the conference back over to Robert Perri for any closing remarks.

Robert Perri

Thank you everyone for taking the time to join us today and we look forward to speaking to you again in our third quarter earnings conference call. Have a good day everyone.

Operator

The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.

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Box Ships (NYSE:TEU): Q2 EPS of $0.06 beats by $0.04. Revenue of $12.52M (-27.8% Y/Y) misses by $1.36M.