IQ Ultra Short Duration ETF
Q1 2016 Earnings Call Transcript

Published: 13 May 2016

[Operator:]

Welcome and thank you for standing by. [Operator Instructions] Today's call is being recorded. If anyone has any objections you may disconnect at this time. Now I would like to turn the call over to Mr. Juan Capelli. Sir, you may begin.

[Juan Francisco Capelli:]

Thank you, operator. Good morning, everyone and welcome to Ultrapetrol (Bahamas) Limited conference call to discuss the company's first quarter 2016 earnings. I would like to remind everyone that this conference call is now being webcast at the company's Web site, www.ultrapetrol.net. There are also additional materials related to our earnings announcement on our Web site including slide presentation which forms a part of this conference call. You should be aware that in today's conference call we will be making certain forward-looking statements to discuss future events and performance. These statements are subject to risks and uncertainties that could cause actual results to differ from the forward-looking statements. For a discussion of factors that could cause actual results to differ, please see the company's 6-K and press release that were issued yesterday and the company's filings with the Securities and Exchange Commission, including without limitation, the company's annual report on Form 20-F for the year ending December 31, 2015, as well as the Page 2 on the Slide presentation that shortly follows. With me today are Mr. Damian Scokin, our Chief Executive Officer, and Ms. Cecilia Yad, our Chief Financial Officer. Damian will first provide an overview of the first quarter results and our key areas of focus as we move forward. Cecilia will then comment on the financials, and after closing remarks from Damian we will then be happy to take your questions. And with that, I will turn the call over to Damian.

[Damian Scokin:]

Good morning, everyone. I am pleased to join you for today's conference call. I will begin by discussing our results and the developments in each of our markets thus far in 2016, as well as providing an update on our progress in implementing our strategic initiatives to help our operational and financial performance. If you move to Slide 3, you can see a summary of our first quarter of 2016 compared to the same period of 2015, broken out by segment. Adjusted EBITDA for our business river increased by $3.8 million from the prior year, despite a 23% decrease in freight rates versus the same period of last year which caused a $4.7 million reduction in growth. We were able to achieve this degree of improvement despite substantial obstacles which is evidence to the efficacy of our strategic initiative. More particularly, the adoption of a new point-to-point operational model allowing our cost reductions in the range of 20% to 25% in our voyage and running cost along with a more efficient operation and thus crew management. Nevertheless, our [over] [ph] adjusted EBITDA for the quarter at $14.3 million was 6% lower than the same period last year. This reflects primarily the negative impact related to the translation of three of our PSV contracts and the blocking of one vessel in the offshore supply business [indiscernible] reduced earnings power related to the divestiture of certain vessels in our ocean. I will now provide you with a more in-depth look at what we are doing in each of the businesses and how that is impacting key performance indicators in each of our segments. If you turn to Slide 5, you can see that the depressed market conditions for both soybean and iron ore persisted throughout the first quarter. Continue to put pressure on freight pricing and overcapacity with an industry-wide average freight price reduction of 23% year-over-year. Moreover, while we have been able to maintain and actually slightly increase our tonnage carried during the first quarter, the substantially lower prices reflected in contract renewals with our largest customers have ranged from approximately 20% to 30%, which obviously impacted profitability. On Slide 6 you can see some of the success that we have had in implementing our strategic initiatives. Most notably, through a significant cost reductions and higher asset utilization both related to our new point to point operational model despite adverse climatic conditions which generated higher transit time. I would also note that during part of the quarter, we had two vessels operating under the time charter contract with [Barren] [ph], which could increase to as many as four vessels in the second half of the year. In relation to our Parana iron transshipment facility, we continue to operate as usual under the take-or-pay contract. Turning to Slide 8 and our offshore supply business. The continuation of extremely low oil prices and the reduced CapEx plans for offshore oil producer globally and particularly for Petrobras, [indiscernible] worked to the detriment of our business. As a result of this, our UP Jasper and UP Agate continue to be laid up in the North Sea. And the UP Esmeralda, UP Amber and UP Pearl remain off hire following the cancellation of their contracts by Petrobras in the second half of 2015. We subsequently presented these five vessels on new Petrobras PSV tender and have received positive preliminary results regarding the likelihood of some of the vessels being selected in the tender and granted REB rights. Given the challenging market environment, those REB rights are particularly crucial as they prevent off-hire Brazilian vessels from exercising their ability to block foreign vessel. By securing REB rights for our currently blocked PSV UP Turquoise, we have agreed with Petrobras to return the vessel into operation just before the end of the second quarter at which point it would resume its activity at a daily time charter of around $21,000, which represents an approximately 30% reduction compared to the original contract rate including devaluation. Unfortunately, we have also been informed that the RSV UP Coral is to be blocked starting August 5, 2016. We are currently pursuing all available avenues by which we can resolve this problem. On Slide 9, you can see the impact of oil price decrease on rig utilization across different geographies as well as the impact on North Sea spot market rates and unemployed PSVs. On Slide 10, we have provided an update of our offshore supply business KPIs. I will not dwell on this Slide for long as the possible impact of our efforts in this area have, to a large extent been greatly [indiscernible] by the negative impact of the unanticipated off-hire that we are experiencing as the result of the current market environment. That being said, we have made progress in reducing costs and continue to operate at the very high level of efficiency while also minimizing off-hires to the full extent possible. Identify every opportunity to further optimize what we are already, a best in class off-shore service provider. Turning to Slide 12 and our ocean business. We continue to move towards an asset-light model, completing the sale of the Product Tanker Alejandrina in late January after it had completed its last charter in mid-September 2015. As with our earlier decision to dispose of certain assets and bareboat charter in vessel to some and existing multiyear contracts, we will continue to look for opportunities to maximize the value of our contract in this business, while also incurring as little asset exposure as possible. We are also currently in an early stage discussion regarding the potential sale of the ocean business in its entirety. But given the preliminary and ongoing nature of these discussions I am not in a position to provide further detail on that possibility at this time. With that, I will hand the call over to Cecilia for her review of the financials.

[Cecilia Yad:]

Thank you, Damian. On the Slide 13, you have condensed version of the company's balance sheet as of March 31, 2016 versus December 31, 2015. As of March 31, 2016, we had cash and cash equivalents on hand of $35.4 million plus $6.5 million in restricted cash giving us a total cash of $41.9 million. We had repaid during January 2016, $4.3 million on our restricted cash accounts of the [indiscernible] and [lien 4] [ph] senior secured loans as part of the forbearance agreement signed with our offshore lenders. As you likely know, the company made a decision during the fourth quarter of 2015, not to make a $10 million interest payment due in December 2015 on each outstanding senior notes. Later we reached an agreement with our secured lenders to conduct consensual financial restructuring negotiations under the protection of the forbearance agreement. Through the end of the first quarter, we have maintained a healthy liquidity position and continue to operate our business on a normal basis, making full and timely payments to vendors, employees, suppliers and trading counterparties. At the same, we have continued to conduct negotiations with our secured lenders on having recently extended the terms of the forbearance agreement through May 31, 2016. During the first quarter of 2015, we have CapEx of $2.6 million, mainly related to dry-dockings and vessel modifications of approximately $1.9 million, nearly all of which was in the offshore supply business, and approximately $0.8 million related to the river business, mainly for maintenance. With that, I would like to turn the call back to Damian.

[Damian Scokin:]

Thank you, Cecilia. And at this point I would like to welcome your questions.

[Damian Scokin:]

So if no further questions arise, we will be happy to talk to further on our next quarterly call.

[Operator:]

And that concludes today's conference. Thank you all for participating. You may now disconnect.