Business Context and Reporting Period
Company: TOP SHIPS INC.
Filing Type: Form 6-K (Report of Foreign Private Issuer)
Reporting Period: Six months ended June 30, 2014 (Interim)
Business Overview: Top Ships Inc. provides international seaborne transportation services for petroleum products. The company is in a fleet transition phase; it sold its previous fleet in 2013 and had no operating vessels until the delivery of the M/T Eships Taweelah on June 20, 2014. The company expects a fleet of six medium-range product/chemical tankers, with five remaining under construction and scheduled for delivery between 2015 and 2016.
Key Financial Metrics
| Metric ($ in thousands) | Six Months Ended June 30, 2013 | Six Months Ended June 30, 2014 |
|---|---|---|
| Voyage Revenues | 14,237 | 619 |
| Operating Income | 8,373 | 322 |
| Net Income / (Loss) | 4,486 | (415) |
| Operating Cash Flow | 7,092 | (2,766) |
| Total Debt (Long-term + Current) | 0 | 19,935 |
| Cash and Cash Equivalents | 9,706 | 13,643 |
| Working Capital Surplus | 1,657 | 4,513 |
Note: The 2014 figures reflect a period with minimal operations due to the fleet gap between April 2013 and June 2014.
Material Changes vs. Prior Period
- Revenue Collapse: Voyage revenues decreased by 95.7% ($13.6 million) due to the sale of the entire fleet in 2013. The company had no operating vessels for most of the period until June 20, 2014. The $619k revenue in 2014 includes demurrage collections from 2007 and revenue from the M/T Eships Taweelah for the last ten days of June.
- Expense Reduction: Total expenses dropped 94.9% to $297k. Vessel depreciation fell 99.0% ($4.0 million) and voyage expenses fell 97.2% ($0.4 million) as there were no vessels to operate or depreciate for the majority of the period.
- Net Loss: The company swung from a net income of $4.5 million in 2013 to a net loss of $0.4 million in 2014. This loss was driven primarily by a $0.7 million fair value loss on financial instruments (warrants issued in June 2014) and a non-recurring gain of $0.4 million from a settlement of vessel sale commissions.
- Capital Structure: The company raised approximately $21.3 million in gross proceeds from a public offering in June 2014 and secured $20.1 million in long-term debt from Alpha Bank to finance the acquisition of the M/T Eships Taweelah.
Outlook, Risks, and Unusual Items
- Recent Developments: In July 2014, the company terminated charters with ESHIPS and entered new agreements with Stena Weco A/S for three vessels (M/T Eships Taweelah, Hull S407, Hull S414) at improved rates ($16,200/day base). In August 2014, the charter for M/T Eships Taweelah was extended to 4+1+1 years with a rate increase to $16,500/day.
- Liquidity: As of June 30, 2014, the company held $13.6 million in unrestricted cash. However, capital commitments for the remaining fleet acquisitions total approximately $130.7 million. Management expects to finance these through operating cash flow, equity offerings, and debt.
- Unusual Items:
- Warrant Liability: A significant portion of the 2014 net loss ($0.68 million) stems from the fair value adjustment of warrants issued in the June 2014 offering, which are classified as liabilities due to specific settlement features.
- Related Party Transactions: The company acquired five vessel-owning subsidiaries from entities affiliated with the CEO in March 2014. Management fees are paid to Central Shipping Monaco SAM (CSM), a related party controlled by the CEO.
- Risks: Future performance is highly dependent on charter rates upon the expiration of current contracts and the successful delivery of the remaining five newbuilding vessels. The company faces interest rate risk on its floating-rate debt (LIBOR + margin).
Investor Verification Checklist
- Fleet Delivery Schedule: Verify the delivery dates for the five remaining tankers under construction (Q1 2015 to Q3 2016) to assess future revenue ramp-up.
- Charter Rate Sustainability: Confirm the terms of the new Stena Weco charters and the market rates for the remaining vessels to be delivered.
- Capital Adequacy: Assess the company's ability to fund the remaining $130.7 million in capital commitments given the current cash balance and debt covenants.
- Warrant Liability Impact: Monitor the fair value of the outstanding warrants, as fluctuations in the stock price will directly impact reported net income/loss.
- Related Party Fees: Review the ongoing management fee structure with CSM and the terms of the vessel acquisitions from CEO-affiliated entities.