TOP Ships Inc. — FY2019 Form 20-F
Reporting period: Fiscal year ended December 31, 2019. This is an annual report, not a standalone 2019 fourth-quarter filing. Financial amounts below are in U.S. dollars; income and cash-flow figures are generally in millions unless stated otherwise. The audited statements use U.S. GAAP.
Business context
TOP Ships owns and operates oil, petroleum-product and chemical tankers. During 2019 it expanded its operating fleet, taking delivery of four vessels; the fleet averaged 11.1 vessels and ended the year with 12, including vessels subsequently classified as held for sale. Most revenue came from time charters. All fleet vessels were under time charters at year-end, and the company reported 98.17% fleet utilization.
Financial and operating performance
| Metric | 2019 | 2018 | Change / context |
|---|---|---|---|
| Total charter revenue | $66.1m | $41.0m | Up 61%, mainly reflecting a larger fleet; 2019 included $3.1m of voyage revenue. |
| Operating income (loss) | $3.9m | $(3.9)m | Improved despite a $12.3m vessel impairment charge. |
| Net loss | $(14.8)m | $(11.1)m | Loss widened by $3.6m, largely as interest and finance costs rose. |
| Net loss attributable to common shareholders | $(31.0)m | $(11.1)m | Includes $16.2m of Series E preferred-related deemed dividends and dividends. |
| Adjusted EBITDA | $36.5m | $10.9m | Non-GAAP measure; company definition excludes, among other items, interest, lease costs and impairments. |
| Average daily TCE | $16,233 | $15,031 | Up 8%; TCE is a non-GAAP operating measure. |
| Interest and finance costs | $18.1m | $9.7m | Up 87%, primarily from added sale-leaseback financing and other debt. |
The filing does not provide a clear reported gross-margin measure. It reports operating income of $3.9m on revenue of $66.1m.
Cash flow: The audited cash-flow statement reports $19.2m provided by operating activities, compared with $0.7m in 2018. Investing activities used $203.3m, principally for vessels under construction and vessel acquisitions; financing activities provided $189.7m. Cash and cash equivalents were $4.4m and restricted cash was $8.9m at year-end, for combined cash and restricted cash of $13.3m.
Balance sheet and liquidity: Total assets were $444.9m, total liabilities $339.1m, and debt was $309.0m net of deferred financing fees (gross debt before those fees: $316.6m). Current assets were $50.7m and current liabilities $75.4m, implying a $24.7m working-capital deficit. The MD&A separately cites a $17.8m deficit; the filing does not clearly reconcile this difference. Management said post-year-end vessel-sale and equity proceeds, together with operating cash flow, were expected to fund obligations for the next 12 months. Debt covenants were reported as compliant at December 31, 2019.
Material changes and unusual items
- Revenue rose with the increase in vessels operated, while vessel operating expenses increased 54% to $22.8m and depreciation increased 94% to $12.4m.
- The company recorded $12.3m of impairment on the Eco Fleet and Eco Revolution after classifying them as held for sale, and a further $3.1m impairment on its joint-venture investments following plans to sell those vessels.
- Interest and finance costs increased by $8.4m. Related-party management fees fell to $2.4m from $7.8m, and general and administrative expenses fell to $1.7m from $7.0m, reflecting lower related-party fees, no comparable bonuses, and reduced executive compensation.
- The company issued 27,129 Series E preferred shares to settle a related-party credit facility. These shares carry a 15% annual dividend, conversion-price adjustments and substantial potential common-share dilution. At year-end, 15,724 Series E shares were outstanding; subsequent redemptions and issuances changed that balance.
- Sale-and-leaseback financing materially increased debt. Several transactions include repurchase obligations or options, restrictive covenants, and cross-default provisions.
- Common shares outstanding were 8,695,348 at year-end, after a 1-for-20 reverse split in August. The filing also describes substantial subsequent share issuance and further dilution after year-end.
Outlook, risks and contingencies
- Outlook: No quantified earnings or revenue guidance is provided. Management stated it intended to review tanker-market opportunities and pursue vessel acquisitions selectively. It anticipated that 2020 operating cash flow would be lower overall after vessel disposals, notwithstanding two new vessel deliveries.
- COVID-19: The filing, signed April 10, 2020, says the pandemic and related restrictions had reduced economic activity and oil demand; its effects on 2020 earnings, cash flow and financial condition could be material, but could not then be estimated.
- Market and financing exposure: Tanker rates and vessel values are cyclical; debt is substantial, some borrowing has floating-rate exposure, and access to refinancing or new capital may be constrained. A 1 percentage-point increase in LIBOR on floating debt not covered by swaps was estimated to add about $1.0m to annual interest expense.
- Charterer concentration: Seven charterers generated 95% of 2019 revenue. The largest shares were Stena Weco (34%), BP (26%) and Shell (13%). Counterparty default or charter renegotiation could reduce cash flow.
- Liquidity and covenant risk: Minimum-liquidity, leverage, listing and change-of-control covenants apply to financing arrangements. A breach could lead to remedies including vessel repossession or accelerated repayment. Management’s liquidity assessment relies in part on post-year-end asset sales and equity raises.
- Fuel and regulation: Only half the fleet was scrubber-fitted; management said it did not plan to install scrubbers on the rest at that time. Higher compliant-fuel costs, environmental rules and operating disruptions could affect results.
- Legal matters: An SEC investigation into 2017 securities offerings remained ongoing, with no loss provision recorded. A securities class action dismissal was affirmed by the appeals court on April 2, 2020, subject to the procedural status described in the filing.
- Capital-market risk: Nasdaq notified the company in December 2019 that its share price was below the $1 minimum bid requirement, with a compliance deadline of June 23, 2020. The company cited a possible reverse split. Series E conversion terms, warrants and later equity offerings create significant dilution risk.
Most important facts for investors to verify
- Reconcile the filing’s $17.8m MD&A working-capital deficit with the $24.7m deficit implied by audited balance-sheet current assets and liabilities.
- Confirm post-year-end cash proceeds, restricted-cash releases, debt prepayments and remaining liquidity against actual obligations and covenant thresholds.
- Track the current debt balance and financing terms after vessel disposals, including sale-leaseback repurchase obligations, balloon payments and floating-rate exposure.
- Assess charter coverage and counterparty concentration following the 2020 vessel sales and deliveries, and test the effect of COVID-19 on charterers and operations.
- Verify the latest share count and potential dilution from Series E preferred shares, warrants and equity offerings, as well as Nasdaq listing compliance.