TBS International Limited Q1 2008 Earnings Call Transcript

May. 9.08 | About: TBS International (TBSI)

TBS International Limited (NASDAQ:TBSI)

Q1 2008 Earnings Call

May 09, 2008, 10:00 am ET

Executives

Fred Lepere - Executive Vice President and Chief Financial Officer

Joseph Royce - Chairman, President and Chief Executive Officer

Analysts

Douglas Mavrinac - Jefferies & Company

Bruce Trent - Bruce Trent Investments

Michael Hecht - Banc of America Securities

Seth Lehman - FIC

Operator

Thank you for standing by ladies and gentlemen and welcome to the TBS International Limited’s First Quarter 2008 Financial Results Conference Call.

We have with us Mr. Joseph E. 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 the listen-only mode. There will be presentation followed by a question-and-answer session. (Operator Instructions). The conference call will be also will be webcast live, audio and slide show on the Investor Relation section of the Company’s website www.tbsship.com by clicking on the webcast banner. I must advise you that this conference is being recorded today, Friday May 09, 2008.

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

Fred Lepere - Executive Vice President and Chief Financial Officer

Good morning and thank you for joining TBS International Limited’s quarterly conference call. The purpose of today’s call is to discuss the results of TBS’s first quarter ended March 31st, 2008. Yesterday we issued a press release after the close of the stock market in New York with financial and operational information for the first quarter.

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 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.

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. 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 not that the webcast will be archived on our website.

I’d like you now to please turn to Slide 2. 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 Registration Statement on Form S-1 and our Quarterly Reports on Form 10-Q as well as our Annual Reports on Form 10-K. These documents contain unidentified 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 - Chairman, President and Chief Executive Officer

Thank you, Fred, good morning everyone, and welcome to TBS’s International conference call for the results for the first quarter ended March 31, 2008. We will begin our presentation with Slide #3, the first quarter overview.

In the first quarter of 2008 TBS achieved record quarterly results for revenues, EBITDA, net income and earnings per share. Building on these record start, and with that increased cargo volumes, enlarged fleet and improved freight rates, the company has a positive outlook for the entire year. We attributed these results to our business model and emphasizes our TBS Five Star Service, Ocean Transportation, Logistics, Port Services, Operations and Strategic Planning.

It is through the professionalism and dedication of the almost 280 worldwide employees of TBS and affiliated agencies who deliver the TBS Five Star Service that we cement our relationships with our customer base and expand the volume of cargo that we transport. This foundation of direct customer relationships sets our company aside from the traditional drybulk cargo companies who focus on chartering their vessels to other companies.

Now let’s turn to Slide #4, TBS today. This slide provides a summary of TBS today. We have strategically positioned TBS to benefit from the global boom in the energy, mining and construction sectors around the world. Our logistics division of the company’s Five Star Service is gaining traction and the prospects for 2008 look promising.

We have enhanced our position in our core markets of Asia and Latin America and have developed new trade routes in the Mediterranean and the Pacific Basin to better serve our customer needs. Our aggregate business in the Middle East has been expanded to new and extended contracts. By the end of June we will have taken delivery of eight vessels this year and expanded our fleet to 44 vessels.

Our Newbuilding program of six Roymar Class tweendeckers is progressing with the keel laying for the first vessel. In order meet our anticipated requirements, to transport increased volumes of line-up, parcel and general cargos, we are investigating the feasibility of building additional tweendeck vessels for delivery in 2011. This positioning as a solid growth company has enabled TBS to prosper significantly from the very positive cargo volume and the freight rate environment that is buoying the dry cargo market.

Now I would like to turn the floor over to Fred Lepere, our Executive Vice President and Chief Financial Officer.

Fred Lepere - Executive Vice President and Chief Financial Officer

Thank you, Joe. We should all now be on Slide #5. This slide is a testimony to our strong financial conditions and profitability as well as the soundness of TBS’s business model. We are financed the six delivered vessels and increased our liquidity to the negotiation of additional credit facilities at competitive turns. We are very pleased with the support we have from the international banking community.

As can be seen on the slide we have closed a $75 million loan facility with the syndicated banks lead by the DVB Group. We’ve also closed the $35 million loan facility with AIG’s Commercial Finance. We have expanded and restructured our existing syndicated facility lead by the Banc of America to $267.5 million from its existing balance of approximately $120million. This facility was originally targeted $200 million and was increased due to an oversubscription. Additionally, we have received commitments from two European Banks to separately finance the tweendeckers Ottawa Princess and Caribe Maiden.

Now let’s turn to Slide 6. This slide summarizes our first quarter 2008 operating and financial highlights. For the first quarter ended March 31, 2008, total revenues were $131.6 million, an increase of 87% over the same period in 2007. Net income for the first quarter of 2008 was $45.4 million, an increase of 215% over the same period in 2007. We also experienced improved margins in the first quarter of 2008.

EBITDA, which is a non-GAAP measure, was 64.3 million dollars for the first quarter of 2008, an increase of 153% over the same period in 2007. This is indicative of our strong cash flow generating capacity. I will provide a reconciliation of EBITDA in another slide. Earnings per share on a fully diluted basis for the first quarter of 2008 were $1.62, an increase of 218% from the earnings per share of $0.51 for the first quarter of last year.

Now let’s look at Slide 7. This slide demonstrates the revenue metrics of our business for the first quarter of 2008. We begin with voyage revenues on the top of the slide. During the first quarter of 2008, we operated 26 vessels in our freight voyage business, and had 2,375 freight voyage days as compared to 21 vessels and 1,898 freight voyage days in the first quarter of 2007. As you can see on this slide, during the first quarter of 2008 we had a significant increase in terms of cargo ship and freight rates per ton.

Now let’s look at time charter revenues on the same slide. Our time charter revenues in the first quarter of 2008 increased by $14.6 million or 81% to $32.7 million from $18.1 million for the three months ended March 31, 2007. Our average daily prime charter equivalence for this business was $30,339 per day in the first quarter of 2008, an increase of 77% from the $17,115 per day during the same period of 2007. This is indicative of the continued strength in the overall worldwide spot market rates.

Now let’s look at Slide 8. This slide provides the highlights of our consolidated balance sheet. At the end of the first quarter, March 31, 2008, our net debt to capitalization ratios stood at 43.8%, which is moderate for industry standards and for the significant flexibility for further growth.

Please now turn to Slide 9. This slide is our EBITDA reconciliation. EBITDA is a non-GAAP financial measure. For the three months ended March 31, 2008 we realized net income of $45.4 million with EBITDA of $64.3 million, while in the three months ended March 31, 2007 we realized net income of $14.4 million with EBITDA of $25.4 million.

We have now reached the end of our presentation. The slides in the Appendix provides more 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 you interest 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 Instruction). Your first question comes from the line of Douglas Mavrinac from Jefferies & Company. Please proceed.

Douglas Mavrinac

Great. Thank you, and congratulations guys on a truly fantastic quarter. First question this morning; it seems though project cargos have been playing in increasingly greater role for you all over the past few quarters, would you say that this maybe one of the best areas of opportunities for TBS to grow your franchise going forward?

Joseph Royce

Good morning Doug. Absolutely, we are very, very positive on the growth of the project business. And this has been a result of the globalization the country’s turning to have export profits into internally to their countries and we are carry more and more project cargo, especially out of Asia. In addition to that with our logistics office headquartered in Houston, we are seeing more and more project opportunities. And this is one area where we feel that TBS shines, because not only do we have the ships, but we also have the professional expertise with our port captains around the different ports in the world that help load and transport and discharge these cargos in a professional manner.

Douglas Mavrinac

Okay, great. And when would the expansion take place in the areas that you already in or you are looking to gain additional market share, or are there other geographic regions that you could foresee TBS expanding into?

Joseph Royce

Well, first of all on our present trade right now, we are increasing sailings, Asia has been a very, very strong market especially with not only the projects but the general cargo business. Our business in and Brazil is expanding also, but the areas that we see the company growing and opportunities is in the Middle East. We see it not only on the bulk side, but we also see opportunities from the Atlantic even in the states of South America and parcel project in general cargo areas. We’ve just recently been there and we have extended some of our contracts for a couple of years actually up to 2010, in our aggregate trade and we see this area continuing to grow and being a part of our growth going into the future.

Douglas Mavrinac

Okay, great. And then, also looking at the number of vessels that you had chartered out during the quarter, I guess you had around 12 or so, can you provide us some color as far as the duration of some of those chartered out vessels, and is this an area that you maybe potentially could see adding to as well?

Joseph Royce

Well, on our chartered out ships that we’ve only had two ships and we’ve had them on time charter pretty consistently over the last five years with NYK, these are two of our ships that have been converted into car carriers. And due to our special relationship with NYK, these ships have been working in the car trade. But all other time charter business is basically positioning ships for example, when we send them out to Asia especially on the bulk side from the Atlantic to position them up in China for drydocking and then as this ship completes drydocking to reposition them back into the Atlantic. And these durations run 50, 55 days and the other way that we utilize the time charter market is when -- especially in our bulk trades, when ships bunch up a bit, we have a ship out of schedule whatever we might -- a time chart for a trip that could range anywhere from 35 to 45 days. But I mean, that’s how we use the time charter business, very well even we look a putting one of our ships out to somebody else for a year or two years because we have our own business.

Douglas Mavrinac

Right.

Joseph Royce

…and as this continues to grow and through that growth we can certainly employ the ships that we have not and ships that we are looking to acquire in the near future.

Douglas Mavrinac

Got it, got it. Great. Thank you. And then, two final questions, as it relates to maybe fleet expansion ideas. First, the last several vessels acquired have been drybulk carriers. I mean, in the past, we have talked about how there is difficulty in finding the significant number of tweendeckers in the second-hand market. Do you think that most of your future second-hand of acquisitions will continue to be on the dry side I mean, is there still a lack of tweendeckers out there for sale in the second-hand market?

Joseph Royce

Yes, there are. I mean the tweendeckers area of the world fleet is the oldest sector and they are very, very -- a few tweendeckers that are out there to either charter or to buy and we are really on everybody’s short list. If somebody has an opportunity for a tweendecker, we know the ships that are out there. We’ve have our eyes on them and as you saw out of the eight ships that we took over and share, three of them were tweendecker, so they do come out. They do come out slower, much slower than the bulk carriers. And for us in our business, I mean, our bulk side, our bulk side is trading without contracts. We are continuing to inspect ships, either they will be tweendeckers or bulk carriers and when we find a ship that we feel fits our standards and condition, we go after it and we will employ it in our business. On the long-term with the tweendeckers, obvious for us, we took our first step in our new building program, where we utilized all the knowledge and experience over the past years and of course that’s why we designed our 34,000 ton Roymar Class. And as I mentioned in the call, we are looking now to further extend that going into the future. Over the long-term the way that we are going to continue to grow our tweendeckers is to build ships.

Douglas Mavrinac

Okay, great. And actually it’s the perfect set of question. My final question, I mean, it has to do with the order book. There is not a lot of information out there about the tweendecker order book. Joe, can you provide some color as far as if there any other tweendeckers out there that you know of, that are on order for maybe 2009, 2010 delivery. And then as kind of a follow-up to that, or maybe some of those guys, if there are others on order or maybe the less financial security the SNN. Given the credit markets, do you foresee any opportunities to maybe make acquisitions of new building tweendeckers or maybe from before the 2011 delivery schedule that you guys alluded to this fact that you maybe adding some to?

Joseph Royce

Well, I mean, first of all, you are right when you say there is really not a visible number of tweendeckers. And the reason is that the ships that are being built and I am talking about the ships in our side, you say 20,000 plus and now, of course our Roymar Class ship is 34,000 tonnage. And the reason you don’t see many of these ships is because the people who have are building these ships are companies like ourselves, the end users. Where people do not build these ships on speculation or you might have maybe a -- and I don’t know that would build a ship and charter that to one of the users. It’s more of a financial deal for say 5, 10 years, so ships are being built. The end users like ourselves, are all facing the same problem, the fleet is old. Its aging everyday, through a good maintenance per example like our ships will certainly maintain them to 30 years and maybe a bit more, but the reality is that looking at the order book, looking at the end users that are building these ships, they are building them for their business.

Now, one of the other things is that not all the tweendeckers are the same and I think that unlike a standard bulk carrier or a Panamax pretty much there are the same type ships. So a lot of these ships are being built for the different trades, some ships do not have standard attaches, some have fine tunes, some have heavy lifts because that’s the end users business. So we feel that the order book for these tweendecks, these tweendeckers is very small and certainly very manageable and it’s not people going in there to speculate on this type of ships. And as a results TBS looking forward, we feel that the way back we are going to continue our growth is through our new building program.

Douglas Mavrinac

Perfect. Thank you very much Joe and congratulations once again guys.

Joseph Royce

Thank you.

Fred Lepere

Thank you.

Operator

Your next question comes from the line of Bruce Trent from Bruce Trent Investments. Please proceed.

Bruce Trent

Hello.

Operator

Please un-mute your line.

Bruce Trent

I don’t think anyone is there.

Operator

(Operator Instructions). Please stand by for your next question. Your next question comes from the line of Michael Hecht from Banc of America Securities. Please proceed.

Michael Hecht

Good morning gentlemen.

Joseph Royce

Good morning Michael.

Michael Hecht

Just if you guys could just -- Joe if you could talk about the shipyard, it seems like things are going well and your six newly build tweendeckers, can you just comment or comment on the shipyard that is building these ships and sort of the track record of the yard?

Joseph Royce

Yeah. We are building our ships in Yahua Shipyard in conjunction with one of the biggest Chinese engineering firms CCCC, China Construction and Communication Corporation. This yard has built ships. It’s a smaller yard. The ships that they have built are Handysize Bulk Carriers and smaller type container ships. This is the first time that they are building our type of ships tweendeckers. The construction schedule probably it’s about I am going to say by 30 to 40 days behind our schedule, which again is pretty much what we anticipated. We feel that the first ship obviously is to ship that will be the most challenging than like any other construction experience. They will speed-up on the second and of course when they build the balance of the four ships, there really we expect them to really improve. And we will be building the third and fourth then the fifth and sixth, those ships side by side, so that’s another positive thing. And so, we think the first ship will come to us as of today probably sometime in April of 2009 and the second ship about five months later and then obviously the balance of the four ships in 2010.

Michael Hecht

That’s great. And just one quick follow on, it seems like that in the quarter you had realized some strong freight rates, can you just talk about the freight, the voyage rates on the tweendeckers?

Joseph Royce

Well, that goes to the question that was asked earlier. Our liner business, our parcel business is very strong and we have overflow situations especially out of Asia. All our ships are booked now almost three months in advance. We have a solid, solid demand for our ships and our services, more projects are coming up into -- out of Asia into South America, where we see this continuing to grow. Right now, we have minimum three sailings a month out of Asia that’s up one sailing from last year. We are servicing the entire South American continent, both East Coast, West Coast and North Coast of South America. In addition to that, we are utilizing some of that bulk carrier in a parallel steel parcel trade that we started last year out of China and Korea and Japan and our first selling was a little quite in the first quarter, but we are starting to load our first ship and that’s picking up. So we see a tremendous amount of demand on our basis, and as a result it's translating into very, very solid we saw trade ways. And when you look at a lot of these general cargo and you look at these project cargos, the freight rates are one thing, but reliability to service and the reputation of the carrier is paramount and of course TBS has an outstanding reputation for quality and service in all the markets that we served in our line of parcel services. And as you can see, how strong our freight rates excluding the aggregates work in the first quarter of 2008, and we feel confident that that trend will continue as the year progresses.

Michael Hecht

Thanks guys.

Operator

(Operator Instructions). Your next question comes from the line Seth Lehman from FIC. Please proceed.

Seth Lehman

Hello, can you hear me? Okay?

Joseph Royce

Yes, we can.

Seth Lehman

First congratulation on a really solid first quarter results.

Joseph Royce

Thank you.

Seth Lehman

I just have couple of questions, one I guess those of the drydock program in 2008, I guess the first quarter you show fewer days of drydocking but more metric tons of steel, and the second quarter the reverse more drydock days and a fewer metric tons of steel required, can you just give me some context of costs these drydocking first quarter versus second quarter?

Joseph Royce

Well, generally speaking the less steel we have in drydock in a particular quarter the less the cost would be. We are anticipating in total for the year somewhere around $60 million worth of drydock costs for all the divestitures in that program. In Q1 the drydock five vessels including one that entered into the drydock in Q4 of ’07 with total of 147 days and about 895 metric tons of steel. Going into Q2 we see about 200 days and about 650 metric tons of steel. And you have to understand that that’s just how the ships fallout particularly ship going into the drydock in a given quarter may need more steel or not. And if you look forward to the third quarter, the days and the steel both go down and then it fix up again in the fourth quarter.

Seth Lehman

Okay. The next question is last month you purchased a handymax bulk carrier, but it was a 1985 vintage which seems to be one of your older ones. I’m trying to understand your thought process of going out in the market for fairly old vessel?

Joseph Royce

Well I mean it's for our business, these are the type of ships that we utilize and we are getting very, very solid rates for them. And we take any ship like this for example and we will take it put it into drydock and then we are going to put into a contract over 2 years. And at today’s rate we’ll have still a substantial portion of cash against the purchase price of the ship and that’s the way that we see our business and for the type of the trades we are in the side ship works perfectly and this side ship most of these lets say early handymax ships where they started to build the super handymax’s are of this age vintage.

Seth Lehman

Okay. And just one last comment, just looking at how Wall Street has taken a look at many of the firm such as yours. I noticed that for TBSI only one firm is putting out earnings estimates. And I’m just wondering -- it seems to be far fewer than you would see on firms of your size. I’m trying to see whether there is any efforts to kind of get more Wall Street firms familiar with your company to give a little bit more information of what they view your outlook today, maybe just talk about whether you are taking any efforts this year to kind of get more recognition for what you are doing?

Joseph Royce

Absolutely. We are talking to other different firms. We expect in the next couple of months to have additional firms following the company. We’ve taken a very, very proactive stands on that as well as taking the opportunity to answer either investors phone calls as well as to go and meet people. So, we are very aware and conscious of that fact and we expect to have some positive news within the next couple of months.

Seth Lehman

Okay. Well thank you again for answering my questions.

Joseph Royce

You are welcome. Have a nice day.

Seth Lehman

Yeah.

Operator

At this time, there are no further questions in the queue. I would now like to turn the call back over to the Company for closing remarks.

Joseph Royce

Okay, well thank you very much. Again I would like to thank you for your interest and support and look forward to our next conference call for the second quarter of 2008 results. And I would like to wish everybody a nice day and a nice weekend.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!