TOP Ships Inc. — FY2017 Form 20-F
Reporting period: Fiscal year ended December 31, 2017. This is an annual report, not a standalone fourth-quarter filing. Financial statements are prepared under U.S. GAAP; amounts below are U.S. dollars unless stated otherwise.
Business context
TOP Ships owns and operates product and chemical tankers, primarily employed under time charters. At year-end, its operating fleet included owned and chartered-in vessels, while it also held interests in joint ventures and had vessels under construction. Fleet utilization was 99.81%; average daily time-charter equivalent (TCE) was $15,403.
Financial performance and liquidity
| Metric | FY2017 / year-end 2017 | FY2016 / year-end 2016 |
|---|---|---|
| Revenue | $39.4 million | $28.4 million |
| Operating income | $1.6 million | $4.8 million |
| Net income (loss) | $(13.3) million | $1.1 million |
| Net loss attributable to common shareholders | $(13.4) million | $(0.4) million |
| Adjusted EBITDA (non-GAAP) | $16.4 million | $16.2 million |
| Cash from operating activities | $0.7 million provided | $6.7 million provided |
| Cash and cash equivalents | $24.1 million | $0.1 million |
| Restricted cash | $6.5 million | $5.5 million |
| Working capital | $3.5 million surplus | $(15.5) million deficit |
| Total assets | $220.4 million | $143.3 million |
| Total equity | $107.3 million | $45.5 million |
2017 net loss equated to roughly 34% of revenue; operating margin was roughly 4%. The filing reports basic and diluted loss per share of $12.57 for 2017, on a share basis retroactively adjusted for reverse splits.
Debt at year-end was approximately $106 million before deferred financing fees (the balance sheet reports $103.9 million net of fees). The company had $51.8 million of committed undrawn facilities. Interest and finance costs rose to $15.8 million from $3.1 million, including $7.5 million of amortized discount on Series C convertible preferred shares and higher loan and financing costs.
Investing activities used $59.1 million, principally for vessel acquisitions and joint-venture investments. Financing activities provided $83.4 million, including short-term notes, long-term debt, equity-sale proceeds, preferred-share proceeds and warrant exercises.
Changes versus the prior year
- Revenue increased 38% to $39.4 million, mainly because more vessels operated for full or longer periods and the company acquired M/T Stenaweco Elegance. Lower charter rates on two chartered-in vessels partly offset growth.
- Operating income fell by $3.2 million as operating expenses, depreciation, related-party management fees and general and administrative costs rose with fleet expansion.
- The company moved from $1.1 million net income to a $13.3 million net loss. Higher finance costs were the principal earnings burden.
- Operating cash flow declined to $0.7 million from $6.7 million, despite the increase in revenue.
- Revenue concentration remained high: 56% came from Stena Weco, 28% from BP Shipping and 16% from NORDEN in 2017.
Outlook, risks and notable items
- Outlook: Management expected 2018 operating cash flow to rise as more vessels were employed for full-year periods and M/T Eco Palm Desert was expected to enter service. This was an expectation, not a guarantee.
- Funding and commitments: At December 31, 2017, remaining fleet-acquisition commitments were reported as approximately $80 million. January 2018 acquisitions added approximately $151.5 million, bringing disclosed commitments to approximately $231.4 million; about $88.4 million was payable in 2018. Management anticipated using cash, operating cash flow, debt or equity, and potentially funds from the controlling shareholder; it also said it might sell newbuilding contracts if financing was unavailable.
- Going concern: The risk-factor discussion says the company was considering capital raising to avoid substantial doubt about funding operations and obligations. The audited financial-statement note, however, concludes there was no substantial doubt for a reasonable period, citing expected financing sources and possible contract sales. This difference merits attention.
- Debt and covenants: Loans are secured by vessels and include leverage, asset-cover and minimum-liquidity requirements, as well as restrictions on dividends and additional debt. Management reported covenant compliance at year-end. Floating-rate exposure remained, partly offset by interest-rate swaps.
- Industry and operations: Tanker rates and vessel values are volatile; risks include charterer default or renegotiation, reliance on a small customer base, vessel downtime, newbuilding delays, and environmental and safety compliance costs.
- Litigation and regulatory inquiry: The SEC subpoenaed the company for documents concerning offerings made between February and August 2017. Two purported securities class actions were pending; the company and management said they considered the claims meritless and intended to defend them.
- Dilution and control: The company issued 8.9 million common shares during 2017 on a retrospectively split-adjusted basis and had outstanding warrants with anti-dilution provisions. Series D preferred shares held by an entity controlled by the Lax Trust carry 1,000 votes each and were issued in connection with lender ownership/voting covenants. The filing also discloses substantial related-party dealings, including vessel transactions and management arrangements.
- Unusual items: Other operating income included a $0.9 million write-off of old accrued liabilities. The company also recognized a $1.1 million write-off of short-term debt. No common dividends were paid in 2017.
Important facts for investors to verify
- Reconcile the going-concern statements and confirm liquidity available to meet the enlarged newbuilding commitments and scheduled debt service.
- Check the status, financing and delivery schedule of the newbuildings, as well as the terms and performance of their charters.
- Review the complete debt and covenant position, including post-year-end borrowings, restricted cash, swap exposure and any covenant amendments or waivers.
- Assess potential dilution from outstanding warrants, equity purchase agreements, reverse splits and other securities; confirm current share counts and warrant terms.
- Track the SEC inquiry and securities litigation, including any subsequent findings, claims, settlements or financial exposure.
- Examine related-party transactions, management fees, incentive awards, vessel purchases and the voting influence of Series D preferred shares.
The independent auditor issued an unqualified opinion on the 2017 financial statements. Management concluded disclosure controls and internal control over financial reporting were effective; the auditor did not provide an internal-control attestation.