TOP Ships Inc. — FY2018 Form 20-F
Reporting period: Fiscal year ended December 31, 2018; statements are prepared under U.S. GAAP and audited by Deloitte. This is an annual filing, not a standalone fourth-quarter report, and the filing does not provide clear Q4-only financial results. Unless noted, amounts below are U.S. dollars.
Business context and financial performance
TOP Ships owns, operates and charters product and chemical tankers. At year-end it operated a growing fleet and held 50% interests in two joint-venture tankers; four additional vessels were under construction. Most vessels were employed on time charters.
| Metric | FY2018 | FY2017 | Change / context |
|---|---|---|---|
| Time-charter revenue | $41.0 million | $39.4 million | Up 4.3%; FY2018 includes $1.6 million from a related-party charter. |
| Operating income (loss) | $(3.9) million | $1.6 million | Turned to an operating loss; expenses increased 19% to $44.9 million. |
| Net loss | $(11.4) million | $(13.3) million | Loss narrowed by $1.9 million. |
| Adjusted EBITDA | $10.9 million | $16.4 million | Down $5.5 million; non-GAAP measure, not a substitute for operating cash flow. |
| Average daily TCE | $15,031 | $15,403 | Down about 2.4%. |
| Fleet utilization | 99.81% | 99.81% | Operating days were 2,663. |
| Operating cash flow | $0.7 million | $0.7 million | Positive but modest relative to investment and financing needs. |
| Total assets | $258.5 million | $220.4 million | Higher, primarily alongside fleet and newbuilding investment. |
| Stockholders’ equity | $104.3 million | $107.3 million | Lower year over year. |
Vessel operating expenses rose 10% to $14.8 million; related-party management fees rose 64% to $7.8 million, largely due to vessel purchase commissions. General and administrative expenses rose 21% to $7.0 million, including bonuses and higher legal and consulting costs. Interest and finance costs fell to $9.7 million from $15.8 million, mainly because FY2017 included substantial convertible-security discount amortization. FY2018 recorded a $1.8 million gain on derivative financial instruments, compared with a $0.3 million loss in FY2017. No vessel impairment was recorded.
Liquidity, debt and capital structure
- At December 31, 2018, reported debt was $140.7 million net of deferred financing fees and debt discounts; management also cites $152.3 million excluding those deductions. The figures use different presentations and should not be conflated.
- Cash and cash equivalents were only $57,000; cash plus restricted cash totaled $7.7 million, of which $7.6 million was restricted. The company reported a $31.5 million working-capital deficit.
- Year-end debt included $114.1 million of bank long-term debt before deferred fees, $24.7 million owed under the related-party Family Trading facility before discounts, and $13.5 million of short-term debt before fees. The Family Trading loan carried a 15% rate and was extended to December 2025, with potential repayment in shares under its terms.
- Management disclosed $152.2 million of committed undrawn facilities and $147.6 million of remaining vessel-acquisition commitments, largely payable in the first half of 2019. It said $66.3 million of those 2019 commitments had been paid by the report date.
- Cash flows: investing used $68.4 million, chiefly for vessels under construction; financing provided $44.8 million. Cash and restricted cash declined from $30.6 million to $7.7 million.
- Bank facilities are largely LIBOR-based and secured by vessels, with financial covenants and restrictions on additional debt, dividends and other actions. The company reported covenant compliance at year-end. Interest-rate swaps covered $86.1 million of debt; management estimated an uncovered 1-percentage-point LIBOR increase would add about $0.4 million to annual interest expense.
Changes, outlook and significant items
- Revenue increased modestly, but the company moved from operating income to an operating loss as operating costs, management fees and G&A grew. Adjusted EBITDA declined despite the narrower net loss.
- The fleet expanded: M/T Eco Palm Desert was delivered in September 2018, while Eco California, Eco Marina Del Ray and two Suezmax vessels were expected in 2019. The joint-venture vessels Eco Holmby Hills and Eco Palm Springs began charter employment in 2018.
- Management expected 2019 operating cash flow to increase, citing more vessels employed for a full year and additional vessel deliveries. This is management’s expectation, not formal earnings guidance. The filing reports charter backlog, including $106.6 million for operating vessels at year-end and $92.4 million for vessels then under construction, subject to delivery, charter terms and other assumptions.
- Going-concern disclosures merit particular attention: the risk-factor and liquidity discussion says the company was considering capital-raising options to address substantial doubt, while the audited financial-statement note states there was no substantial doubt, citing undrawn facilities and expected financing sources. Both disclosures describe the same year-end liquidity pressures.
- Post-year-end transactions included sale-and-leasebacks for Nord Valiant and Eco California, a $10.5 million AT Bank bridge facility, and delivery/chartering of Eco California and Eco Marina Del Ray. The bridge facility restricts dividends and certain payments, including payments on the Family Trading facility. Two further Suezmax vessels were expected to be financed through sale-and-leasebacks.
- The company reported ongoing SEC subpoenas and an unresolved securities class action; it had not established a provision for the SEC matter and could not predict the outcome. Certain co-defendants sought indemnification. The company says it believes the claims are without merit.
- Customer concentration is material: the filing reports four charterers generated FY2018 revenue, with 55% from Stena Weco, 26% from BP, 15% from DS Norden and 4% from Central Tanker Chartering; elsewhere it describes revenue as derived from five charterers. Related-party transactions and this apparent difference should be checked against the detailed financial statements.
- Equity issuance was significant: 14.1 million common shares were issued during 2018, and common shares outstanding rose to 23.0 million at year-end from 8.9 million. The company also disclosed potential further dilution from warrants and convertible related-party debt. No common dividends were paid in 2016–2018.
Principal risks and unusual matters
- Liquidity and refinancing risk, substantial working-capital deficit, low unrestricted cash, large vessel commitments and dependence on external financing.
- High leverage, floating-rate debt, restrictive covenants, cross-default provisions and potential vessel repossession if defaults are not cured.
- Highly concentrated charterer and related-party exposure; key management, vessel management and financing arrangements involve affiliates of the controlling shareholder.
- Shipping-market volatility, charter-rate and vessel-value declines, counterparty default, vessel operations, environmental liabilities and regulatory compliance costs, including emissions requirements.
- Nasdaq notified the company in March 2019 that it did not meet the $1.00 minimum bid-price requirement, with a compliance deadline of September 9, 2019. Share price volatility, low trading volume and potential delisting are disclosed risks.
- The filing identifies the Lax Trust as holding all Series D preferred shares, each with 1,000 votes, giving it control over company actions; it also describes potential substantial common-share ownership through warrants and convertible debt.
- Related-party fees and acquisition transactions are notable. FY2018 related-party charges to CSM totaled $8.9 million across income-statement charges and capitalized costs, including $3.9 million of vessel purchase/sale commissions and a $1.25 million performance fee.
Important facts for investors to verify
- Reconcile the going-concern language with the liquidity position, actual facility availability, payments made after year-end and remaining vessel commitments.
- Confirm current unrestricted liquidity, debt balances and maturities, covenant headroom, bridge-facility terms, and the completion and net proceeds of each sale-and-leaseback.
- Review charter backlog, delivery status, actual charter commencement, termination/option provisions and charterer credit quality; distinguish firm commitments from optional periods.
- Reconcile customer-concentration disclosures and quantify related-party revenue, management fees, acquisition commissions, debt terms and potential share conversions.
- Assess dilution from common-share issuance, outstanding warrants, warrant repricing and convertible related-party debt, alongside Nasdaq listing compliance.
- Monitor the SEC investigation, securities litigation, indemnification request and any resulting costs, liabilities or developments.