IQ Ultra Short Duration ETF
Q2 2016 Earnings Call Transcript

Published: 26 Aug 2016

[Operator:]

Welcome and thank you for standing by. At this time, all participants’ lines are in a listen-only mode. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at that point. I’ll now turn the call over to your host, Deputy Chief Financial Officer Mr. Juan Capelli. Sir, you may now begin.

[Juan Capelli:]

Thank you, operator. Good morning, everyone and welcome to Ultrapetrol (Bahamas) Limited conference call to discuss the Company’s second quarter 2016 earnings. I would like to remind everyone that this conference call is now being webcast at the Company’s website, www.ultrapetrol.net. There are also additional materials related to our earnings announcement on our website including a slide presentation which forms part of this conference call. You should be aware that in today’s conference call, we may 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. For a discussion of such factors, please see 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 two of 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 second 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 be happy to take your questions. And with that, I will turn the call over to Damian.

[Damian Scokin:]

Thanks. 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. If you turned to slide three, we have provided a summary of our results in the second quarter of 2016 compared to second quarter of 2015 broken out by segment. As you can see, the continuing weakness of the commodity markets underlying our core business weighed on our results throughout the quarter. At the same time, I would point out that our River Business adjusted EBITDA actually increased slightly from the prior year period, despite the reduction in revenues, resulting from freight rate decline of 16% over that same period. By increasing tons transported, focusing on controlling cost, savings on fuel and optimizing our operations, we were nonetheless able to realize an overall improvement in the segment financial results. Our offshore business continued to feel a significant impact from the cancelation of three of our vessel contracts with Petrobras and also of the blocking of an additional one in September last year as well as by the devaluation of the Brazilian real second quarter -- within the second quarter of 2015 and the second quarter of 2016. This resulted in an adjusted EBITDA decrease of $4.5 million for this segment, despite the positive contribution from the entrance of our RSV UP Coral into service under a long-term contract with Petrobras on August 05, 2015. Our Ocean segment improved its adjusted EBITDA by $1.1 million, as a result of the entry into operations of our bareboat chartered vessel Mentor on July 1, 2015, a slight increase in efficiency at cargo volumes from our container feeder vessels that enable a greater level of output. These factors more than compensated for the reduced earnings from three vessels sold in the segment since May 2015 as well as the vessel dry-docking during the second quarter of 2016. I will now provide you with a more in-depth view of each of the businesses, and an update on the impact of our strategic initiatives and key performance indications in each of our segments. Turning to slide five, historically weak commodity markets continued to pressure freight pricing through the second quarter, resulting in a 16% reduction in fright rates, vis-à-vis their 2015 levels. There were some bright spots however, as we did increase our gross tons carried by 10% versus 2015 levels and soybean prices reached height [ph] during the second quarter that has not been achieved since mid 2014. While soybean prices have come back somewhat since that time and despite the spike in pricing was not sufficient to fundamentally alter the supply demand imbalance in the River, we do see this increase in average soybean prices as a positive signal for our business. On slide six, you can see the positive impacts of the different strategic initiatives, particularly throughout our adoption of a point-to-point operational model that increased our efficiency in a variety of ways including asset utilization, transit times, and cost per ton transported. We expect to continue to see the benefit from these and other cost reduction initiatives in the forthcoming quarters. Our Parana iron transshipment facility continued to operate on a take-or-pay basis moving 165,000 tons during the quarter, up from 148,000 in the prior year period as well as our daily [ph] time charters. Let’s turn now to page eight, on our offshore supply business. As you are undoubtedly aware, the persistence of low oil prices has continued to present a challenge for offshore oil producers on a global basis with both the North Sea and offshore Brazil PSV markets drastically reducing their CapEx plans. In this environment, our UP Jasper and UP Agate remained laid up in the North Sea throughout the quarter, due to severely depressed rates there. Furthermore, our UP Amber, UP Pearl and UP Esmeralda were laid up following the cancellation of their contracts with Petrobras in 2015. And UP Turquoise remained blocked in Brazil. Representing five of these vessels on new Petrobras PSV tender with positive preliminary results, we have also made progress in attaining REB rights for our non-Brazil flag vessels and believe that we have a high probability of attaining those and pulling [ph] our vessels and equally pulling [ph] with Brazil flag vessels. We do however still require Board approval from Petrobras and confirmation on the number of vessels to be employed throughout this tender. During the quarter, we did receive one year contract extension for the UP Safira and UP Opal at slightly reduce day rate. We have also obtained a one year extension for our RSV UP Coral through August 24, 2017 after being blocked on August 5, 2016. In addition, on August, our UP Jade completed its one year extension period with Petrobras and would be laid up until we’re able to secure further improvement [indiscernible] for this vessel. Turning to slide nine, you can see that there are significantly constructing trends in the offshore supply business at the moment. With the recent upturn in rig utilization in the Americas and Europe constructing with a continued reduction in the rest of the world. Similarly, we have seen the number of unemployed PSVs global increase by 202% as of June 2016 versus the same period of 2015, while average daily spot rates in the North Sea actually rose. Despite this mild increase, recent figures show rate declining thereafter. On slide 10, we have provided an update on our offshore supply business KPIs. As you can see, while we have continued to make progress in reducing cost in the business, the negative impact from multiple vessels being off hire, remain substantial. As we pursue opportunities to return this off hire vessels to profitable employment, we will also continue to enforce our cost reduction initiatives and we expect to see the positive impact of those efforts in our results. Turning to slide 12 and our Ocean Business, we’re operating this segment on an asset light model and our seeking to maximize the value of our contract by consistently and efficiently servicing those contracts with a minimal level of direct vessel ownership. We have seen improvement across our KPIs here, most notably in 32% increase in the number of tons per vessel per vessel in our container feeder vessels. We continue to conduct discussions that would potentially involve the sale of the ocean business in its entirety but those discussions remain ongoing at this time. With that I will handle the call over the Cecilia for her review of the financials.

[Cecilia Yad:]

Thank you, Damian. On slide 13, you have a condensed version of the Company’s balance sheet as of June 30, 2016 versus December 31, 2015. As of June 30, 2016, we had cash and cash equivalents on hand of $45.6 million plus $6.5 million in restricted cash, giving us a total cash of $52.1 million. On April 5, 2016, we announced that an extension was agreed with our secured lenders for the seeking forbearance agreement, until April 30, 2016. These we are subsequently extending and maintain 2016 through May 31, 2016. Even though no further extensions were agreed after such date, we are confident that the financial restructuring can be reached in order to ensure the healthy position for both, the Company and our secured lenders. On June 15, 2016, the Company decided not to make a $10 million interest payment on its outstanding note due 2021. And additionally, the Company decided not to make the $6.5 million interest on principal repayment on the other loan facility related for the Company’s River Business. As negotiations continue to progress with our secured lenders, several options continue being analyzed in order to achieve a consensual restructuring. This may conclude sale of assets and/or business segment, restructuring of our existing indebtedness and adding new capital. Nevertheless, one of our main priorities continues to be maintaining a healthy liquidity position for the Company, and continue to operate our business on a normal basis, making full and timely payments to our vendors, employees, suppliers and trading counterparties. With that I would like to turn the call back to Damian.

[Damian Scokin:]

With that, I would just like to thank you for joining today’s call and we would be happy to take your questions.

[Juan Capelli:]

Thank you for joining us. We look forward to third quarter financial results.

[Operator:]

Thank you. And that concludes today’s call. Thank you for participating. You may now disconnect.