IQ Ultra Short Duration ETF
Q2 2015 Earnings Call Transcript

Published: 13 Aug 2015

[Operator:]

Welcome and thank you for standing by. At this time, all participants are in listen-only mode. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this point. I would now like to turn the call over to your host, Len Hoskinson. Sir, you may begin. Thank you.

[Len Hoskinson:]

Thank you, Michael. Good morning, everyone and welcome to the Ultrapetrol Bahamas Ltd. conference call to discuss the company’s second quarter 2015 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 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 results to differ, please see the company’s filed 20-F and the press release and 6-K that was filed yesterday as well as the company’s prior filings with the SEC on Page two of the slide presentation that shortly follows. With me today is Mr. Damian Scokin, our Chief Executive Officer and Ms. Cecilia Yad, our Chief Financial Officer. Damian will give an overview of the first quarter results and take you through the key areas of focus as we move forward. Cecilia will then take you through the financials. And after closing remarks from Damian, we will then be happy to take your questions. Just before I hand the proceeding to Damian, I need to draw your attention to the passcode that was in the press release relating to the replay. That passcode should read 81315 meaning dropping the 0 before the 8. And Damian, over to you. Thank you

[Damian Scokin:]

Good morning, everyone. I am pleased to join you in today’s call and I look forward to taking your questions after we provided a brief overview of the quarter. The core market environment for each of our businesses and our progress in implementing strategic initiatives to strengthen Ultrapetrol and allow the company's full potential. Starting with slide three, you can see a summary of our second quarter results compared to the previous period of 2014 broken out by segment. Adjusted EBITDA for the second quarter of 2015 was $17.8 million against $25.4 million in the same period of last year. Our total segment adjusted EBITDA which eliminate the impact of our foreign exchange exposure was $16.1 million down from $22.7 million in the previous year period. Lastly, as a result of the base price rates towards the second quarter, our river business adjusted EBITDA decreased by $1.9 million year-over-year to $6.6 million for the 2015 second quarter We are implementing a number of measures to improve vessel reliability and performance, while control in operational in these segment. And I would point out that $1.3 million of our cost in the river business in the second quarter while in the form of restructuring cost. Most of them related to servant's payments accrual. While these of course starts negative impact on the going forward, we feel that these actions have started the broader plan to increase our return on assets in these segment pull to us in an improved position moving forward. We also sold some current market to third-party deal from our shipyard during this quarter. The total sponsors supported in the second quarter of 2015 were 7% lower than those will be a year earlier. Despite these pressure on both pricing and volumes our decision to implement a more streamline combo system and our consistent execution of cost cutting measures have - positive results, which I will discuss in more detail shortly. Our offshore supply segment's adjusted EBITDA for the second quarter of 2015 was $11.5 million compared with $12.5 million in the same period of last year. during second quarter of this year we had a large fleet of PSVs as compared to the same period of last year but the difference rate environment in the North Sea lead us to lead up two vessels operating in the spot markets grow much of the quarter. At the same time, I am pleased to confirm that does frequent to the quarter our UP Coral commenced its employment with Petrobras as an RSV Tough Sea, Tough - threshold. Finally our ocean segment adjusted EBITDA for the second quarter of 2015 was down $3.7 million year-over-year to a loss of $1.5 million. This result is largely attributable to our product tanker Alejandrina which was laid up from September 2014 and will returning into service on May 5, 2015. And also the net loss of $1.1 million from the sales of our product tanker Miranda in mid- May as well as mechanical issues already solved in a container - basis that cost more than 20 of higher base renewals. We continue to make progress in the presentation on several initiatives towards the second quarter realizing gains and efficiencies cost control and organization across the different businesses. This process ongoing I will now provide an update on our efforts in improving certain key performance indicators in each of the segment. On slide five, you can see the continued pressure on pricing for both soybeans [ph] and iron ore, the primary cargos for dry barges in Hidrovia. Continued weakness in iron ore volumes has resulted in a difficult market environment in which transportation providers are competing for a share of a smaller overall transportation volume. These result in approximately 25% excess capacity and is well pressure on prices of approximately 10%. Despite a challenging environment as chart described you can see on slide six that the measures we’re taking and the stride that we have made in strengthening our business is like operating a more stream like point-to-point model focusing on cost reductions, improving the reliability of our pushboats and emphasizing the take or pay contract that offer us - cash flows and partially insulating us from the spot market, we have increased asset utilization, improved transit times [ph] and reduce cost per ton transported while also reducing basal downtime. On a specific note during this quarter, we commented a contract to serve a 60% of Petropar transportation need, transit 117,000 tons of - at our Parana Iron station significantly reduced our crew staff and made the decision to lay up and place us back up a larger number of pushboats. These will allow us to both improve our operational - I know since to allying in a much better way our capacity with the - market need while maintaining our ability to quickly reactivate these vessels our touch time as a marketing tools. While the significant year-over-year improvements in reliability and transshipment on 770 were highlighting, I would also like to point out that the increase in revenue per asset on a net book value basis I always like was achieved on especially difficult market environment. While we cannot ultimately control global commodity prices and the transport in Hidrovia we are determined to put ourselves in a position to realize a maximal benefit when this cyclical market indicatively repair to more phenomenal levels. At our Punta Alvear Shipyard, the increase interest have noted last quarter have translated in the second quarter into sales to third parties of 14 our segment EBITDA. Due impact, the adoption of double regulations for tank barges operating in Hidrovia this increased demand has continued into the third quarter where we have received additional inquiries and expect to FAQs further segment. Now, turning to slide eight, the global markets continue to be challenged by the low oil price environment it has related into weakened demand for PSVs in the North Sea and elsewhere. In Brazil, Petrobras continues to work through issues of its own and the company has announced revised divestment and CapEx plans focusing on oil production projects in the Brazilian pre-salt deposit. Throughout this, we have maintained a strong relationship as different provider of PSV and RSV services to Petrobras. In turning to slide nine, you will see that our 11 PSVs on long-term charter contracts with Petrobras continue to operate as planned throughout the quarter, while we made a decision in April to lay up two North Sea vessels rather than to operate them at the loss making spot market. We have submitted these two vessels to a new tender issued by Petrobras and we are waiting for final decisions there. Also, as I mentioned our - RSV subsea support vessel, UP Coral recently entered into operation in a six year employment contract with Petrobras at an effective rate on higher margins that are earned by our standard PSVs. When you exclude the effect our decision to lay-up our two North Sea vessels our revenue per calendar base, our unplanned - and our cost all improved during the second quarter. This operational improvement of size the North Sea market these ways on our segment results for the quarter. In addition to pursuing the employment opportunities for this basis in offshore Brazil, I feel that is important for this done that there run rate earnings contributions from the recently commences UP Coral contract is meaningfully in excess of the combined contribution from the UP Jasper and UP Agate operating in normal market conditions. Turning now to the ocean business on slide 11. Our product Alejandrina re-entered service on May 6, having being lay up as of September 2014. And were quarterly evaluating currently opportunities to gain fully employee share in foreign market. We have also concluded to implement an operational model in the segment selling Product Tankers Amadeo and Miranda and continue to service Miranda's 3 year-contract with Petrobras using charter Amadeo. We are still evaluating the alternative of finally arrangement for Amadeo's trade and for the continued service in particular we've seen an improved volume performance for the third quarter thanks to the now resolved chemical issues that cost more than 20 of - in the second quarter. Finally on slide 13. We have outlined our primary initiative and listed the specific actions we've taken to improve organization. Broadly we are seeking to improve management capabilities and skills at different levels in streamlining decision making process and improving our management systems and corporate culture based much more on a accountability, efficiency and customer service that in past. In implementing these initiatives we have higher managers with value - for various aspects of the business and brought from the market larger abilities to monitor our cost and performance in real time. We also improve a range of new processes to support a liner operation with a higher degree of personal accountability at proper processes. With that I'll hand the call over to for her review of the financials.

[Cecilia Yad:]

Thank you, Damian. On slide 14, you have condensed version of the company’s balance sheet as of June 30, 2015 versus December 31, 2014. As of June 30, 2015, we had cash and cash equivalents on hand of 29.7 million plus 11.3 million in restricted cash, making a total of cash of 40.9 million. In addition as of June 30, 2015 we have available borrowing capacity on the revolving credit facility of 10 million and 6.4 million related with our financing of our PSVs UP Agate and UP Coral with DBB Bank and NIBC. In terms of CapEx for the six months period ended June 30, 2015 we disbursed in our River business 8.8 million for the construction of new barges for our own use, 4.1 million in the construction of new line and bought push boats and 1.8 million in our Bahamas Island on our mainstream --. Additionally 4.3 million were invested in the combustion of a UP coral into RSV in our offshore supply business. In this quarter we are in true compliance with all covenants. With that, I would like to turn the call back to Damian.

[Damian Scokin:]

In summary, I mean what I would say our very difficult market conditions we continue to put in place measures that would improve Ultrapetrol for 4 months and enhance our operation and also our financial results in the future. We are still in the early stages of implementing significant changes throughout the company and the market conditions make that this improvement are not reflected on our EBITDA. But we are encouraged by the progress that we have made thus far and are determine to see these process through to ensure that our shareholders can benefit from the potential of Ultrapetrol. With that I would like to thank you for joining us in the call today and we'll be glad at this time to take your questions. So Michael if you could open the lines for questions?

[Operator:]

Thank you. [Operator Instructions] We have our first question coming from the line of Ben Nolan. Sir, your line is now open.

[Ben Nolan:]

Great. Thank you. I have several questions quickly. First for tank barge sales that you announced the six of them, where all six of those second quarter events or should you expect some impact of those sales in the third quarter as well?

[Cecilia Yad:]

Six already occurring in the second quarter and we have within in the pipeline for coming new phase for the next quarter.

[Ben Nolan:]

Okay. And could you remind me approximately how many of those tank barges the yard can produce in the quarter?

[Cecilia Yad:]

Can produce? Do you mean in the shipyard?

[Ben Nolan:]

Yes.

[Cecilia Yad:]

While it will depending in how many shape you can having the shipyard because the shipyard capacity it could be higher than the once that we are using the shipyard today. Remember that in the past we used to be little close to 60 barges in a year.

[Ben Nolan:]

Right.

[Cecilia Yad:]

So, now that we are in running the shipyard in a minimum capacity so we will include between 10 and 14 barges per year.

[Ben Nolan:]

Okay, that’s helpful. And then with respect to the Petrobras tenders on the two PSVs that are currently led up in the North Sea, what is the timing of those tenders if you’re to win the tender one would you expect the employment to begin?

[Damian Scokin:]

Ben it’s extremely hard to given us. The tenders have been open now for like twice or three times the normal period in the past. So, the conclusion on that is hard us to commit on, I would really expect to cover decision within this quarter and impact hopefully in the last one.

[Ben Nolan:]

Okay.

[Damian Scokin:]

But it doesn’t depend on us.

[Ben Nolan:]

Okay. That’s helpful. And then lastly I noted in the past you guys have talked some about refinancing some of the debt on the PSVs I was wondering if there is any update on that?

[Len Hoskinson:]

While those - to report and - we would put it into filing. I can give you a progress reports and since on last call, we’ve been discussions with our lead bank which is DBB and we’ve signed a term sheet with DBB and that was done at the end of July. And together with NIBC they are joint that are going through their credit approval processes and I expect them to complete those credit approval processes during the month of August. And once the two done that process out of the way and then open it up for thanks to be invited and we’re waken on the time table that we hope to get just signed by the end of October.

[Ben Nolan:]

Okay. Len could you remind me what is the approximate amount of debt that would be refinanced as a part of this and one of the subsequent which would hope would be the subsequent something amount?

[Len Hoskinson:]

While we’re working on two aspects one is the refinancing of the existing outstanding which if you’re look in the filings is about 155 and we’re looking also to get some financing in place for some new projects. I don’t want to go into what the projects are but the new projects if we go ahead with the new projects on a get funded within this new facility. And we’re looking for loan to value below 50%.

[Ben Nolan:]

Okay. All right. Very nice if you could say more about the new projects but I understand if you can’t so that does it from me. Thanks.

[Damian Scokin:]

All right.

[Operator:]

Thank you. We have our next question coming from Michael Schlembach. Sir, your line is now open.

[Michael Schlembach:]

Hi, good morning. Thanks as always for having the call. And couple of following questions been started where I was going to pick up so pretty much appreciated there. On those bank negotiations is part of that does it involve refinancing and extending of the revolving credit facility?

[Damian Scokin:]

Not just this time Michael we don't need it. So basically max line will be so canceled with the new facility that come out that will evolve we hope will be excluding revolver.

[Michael Schlembach:]

Right, but the refinancing itself of the paper would involve and paying down the outstandings currently on the revolver yes.

[Damian Scokin:]

Yeah all the existing debts will be repaid with the exception of the BNDES facility that we have for the --. That's all we going to involve another kind of a replacement guarantee to be issued. So excluding that the other bank balances and the banks involved that would be repaid. And a new loan would start going out for a nice period of time for us. And basically we smooth repayments that what we be smooth repayments there won't be any balloon payments next year on 2017 there will be smooth outs and we'll start with the new facility.

[Michael Schlembach:]

Can you give us a sense of what tenant you would expect the new facility to be in terms of the maturity in the years?

[Damian Scokin:]

Yeah it should run 5 to 7 years with the - payments depending on how long it runs.

[Michael Schlembach:]

Got it. So in 2020 or 2025 find another some type of --.

[Damian Scokin:]

Right. I mean we basically looking to have annual repayments going forward in line with what we've had in the normal year in the past.

[Michael Schlembach:]

Good that would be a very good news when now you've been harder work at it. So congrats on the progress we'll look to see at the drydock expense that you guys have disclosed for the remaining part of the year of $8.1 million has that all been expensed already or is it going to be new expense that runs through the income statement.

[Cecilia Yad:]

No it will be new expense. So this drydock expense has not committing yet so this is part of our plan for the second half of the year.

[Michael Schlembach:]

How does that compared to drydock expense last year and the year before.

[Cecilia Yad:]

I would say that in 2014, it was close to $13 million to $14 million.

[Michael Schlembach:]

Yeah it seems like it's a smaller amount that's why I was asking.

[Cecilia Yad:]

Yeah but this is set for the second half of the year the second part of the year. Then the first half we can also forming any drydocks I mean having - total of $12 million.

[Michael Schlembach:]

And then two other questions, the first is in previous calls we've talked about you guys have talked about 2015 EBITDA being more than 2014 EBITDA, but we're running sort of $6 million behind last year's number. And I realize that fourth quarter will be relatively easy comp? So just wondering if you are willing to continue speaking to your progress and what you expect that the full year 2015 as compared to the previous year results.

[Damian Scokin:]

Well we remain committed to improving our EBITDA vis-à-vis last year under poor market condition. What we seen recently is at right of the deterioration of the market that was faster than expected. So if we take a picture now I would say well this poor conditions will remain in place. We still believe we'll reach a higher EBITDA than last year. Though to be honest in that the rate of the offshore and the river markets have been increasing.

[Michael Schlembach:]

And then on the river business itself, there is been there are few articles during this quarter about the growth of other crops in the region beyond soil. And I'm just wondering if you're starting to see more demand to move other agriculture products that aren't - in higher volumes than or higher amounts of - about it anyway than in previous years and assuming river levels kind a remain they're slightly higher than average years based on what we're seen. So if that's the case is there a little bit of potential upside in the late third quarter early fourth quarter on moving agricultural product on the River that is not soy and that's it from. Thank you for taking all of my questions.

[Damian Scokin:]

Yeah, alright. I mean we are working exactly on those I mentioned not only in the short term from the next couple of quarter over the issuance crops or cargo and we transport - in a longer-term deal of what additional areas within the south of Brazil. It can be attractive to transport their soybean through Hidrovia. So yes we continue working on that, we see positive signs although the impact in the next few quarter is going to be - I would say because of the amount that will remain very positive in the medium term.

[Michael Schlembach:]

I'm sorry. I had one follow up question, I really appreciate it. I saw that you guys made a change on the board of directors and you placed one Southern Cross director with another one. Is there any read through there on the type or the support of the Southern Cross or what was the general reason for that? Sorry I forgot that question. Thank you.

[Damian Scokin:]

The only reason behind that is the schedule conflict Raul the new member of the capital board is one of the three founding members of Southern Cross along with - so if you need to really interest our commitment is even larger now that in the past.

[Michael Schlembach:]

Thank you very much for the questions and the answers.

[Operator:]

Thank you. One moment, we have one upcoming question. We have one question coming from Mike Vermont [ph]. Sir your line is now open.

[Unidentified Analyst:]

In conjunction with the refinancing and then I might miss this earlier. Have you looked about taking on some subordinated notes and I guess cleaning up the capital structure and taking in the minority equity interest, has that been on the plate or is there any reason for leaving out 10%-15% of the equity in minority shareholders.

[Damian Scokin:]

Business of - UP offshore level, Mike. The priority of the company is to sort out the balloon payments that we have in 2016 and 2017 and hopefully build something therefore some growth within UP offshore. That's the priority at the moment. Addressing the rest of the capital structure both of Petro and - that will be dealt with mix but we're just looking this currently as a refinancing of UP offshore try to build some growth for UP offshore in the way we have acquisition in the vessels and the rest of it will address later. So the answer is no.

[Unidentified Analyst:]

Got it. Okay. Excellent, I appreciate it.

[Operator:]

Thank you. And we see no further questions in queue sir.

[Damian Scokin:]

Thank you very much to everyone. I'm looking forward to meeting you over the phone on our next earnings call. Thanks.

[Operator:]

Thank you. That concludes today’s conference. Thank you all for your participation. You may disconnect at this time.