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August 16, 2010 11:14

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NewLead Holdings Ltd Announces Second Quarter 2010 Financial Results

NewLead Holdings Ltd. (“NewLead” or the “Company”), an international, vertically integrated shipping company, today reported financial results for the three and six months ended June 30, 2010. Michael S. Zolotas, President and Chief Executive Officer stated, “I am pleased with our performance and the significant progress we have made

since we took control of the Company in October 2009. The hard work of
our team, while implementing our fleet transformation and growth
strategy, is reflected by the $10.1 million in adjusted EBITDA generated
by our core vessels during the second quarter of 2010.”

Continuation of Turnaround Strategy

NewLead’s new leadership is focusing on refining the Company’s core
fleet as reflected in the 13 vessels acquired, including four
newbuildings, since the close of the first quarter of 2010. The Company
has strategically decided to dispose of all non-core vessels, including
container vessels, while simultaneously acquiring newer tonnage, with
long-term quality time charters attached. The acquisition and
integration of operational, commercial and technical management,
completed during Q2 2010, has improved the profitability of the Company
as reflected by the 17.3% reduction in direct daily vessel operating
expenses compared to Q2 2009, as well as in the relative improvement of
its fleet utilization to 97.4% in the second quarter of 2010, excluding
non-core vessels. Furthermore, NewLead’s management has implemented a
coherent chartering strategy, to secure long-term cash, with upside via
profit sharing, while taking into account both the dry bulk and tanker
market industry trends. The Company has contracted 71.0%, 45.0%, 37.0%,
34.0% of its available days on a charter-out-basis for the remainder of
2010, 2011, 2012 and 2013, respectively. As a result, NewLead has over
$200.0 million of total contracted revenue through 2013, excluding any
profit sharing from existing charters.

Fleet Growth

In April 2010, NewLead completed the first dropdown of six vessels from
Grandunion Inc. (“Grandunion”). This acquisition is reflected in the
Company’s second quarter 2010 financial results. In July 2010, NewLead
completed a second dropdown of five dry bulk vessels, including two
newbuildings with long-term quality time charters from Grandunion. Total
consideration for the dropdown of the five vessels is approximately
$147.0 million, which includes approximately $93.0 million in assumed
bank debt and other liabilities. The balance, representing newbuilding
commitments, will be financed with committed bank and shipyard credit
facilities as well as with cash from the Company’s balance sheet.

The three vessels acquired as part of the second dropdown that are
currently in operation, the Grand Markela, the Grand Spartounta and the
Grand Esmeralda, should generate approximately $11.0 million in annual
vessel EBITDA, based on prevailing market rates and assuming direct
operating expenses of $6,800 per vessel per day.

Newbuilding Program

In the second quarter of 2010, NewLead completed the purchase of two
80,000 dwt geared Kamsarmaxes for an aggregate purchase price of $112.7
million. The two Kamsarmaxes are expected to be delivered from COSCO
Dalian Shipyard during the fourth quarter of 2010 and 2011,
respectively, and will be chartered out immediately upon delivery to a
first-class charterer. The first vessel is chartered-out for a five-year
initial term of $28,710 net rate per day plus owner’s two-year put
option ranging between $20,000 and $28,000. The second vessel is
chartered-out for a seven-year term of $27,300 net rate per day. These
time charters are projected to add approximately $16.1 million in annual
vessel EBITDA and $104.0 million in aggregate vessel EBITDA over the
term of the charters.

In the first quarter of 2010, NewLead completed the purchase of a 92,000
dwt post-Panamax vessel for $37 million, constructed at a first-class
Korean shipyard and is expected to be delivered in the second quarter of
2011. The vessel is chartered-out to a first-class charterer for
approximately seven years at a floor rate of $14,438 net rate per day
plus 50/50 profit sharing above $17,000. This time charter is projected
to add approximately $3.2 million in annual vessel EBITDA and $21.0
million in aggregate vessel EBITDA, assuming zero profit sharing. Using
rates as of August 4, 2010, the annualized vessel EBITDA would be $4.2
million and aggregate EBITDA over the term of the charter would be $28.3
million, reflecting the profit sharing contribution.

As part of the second dropdown completed in July 2010, NewLead also
acquired two 35,000 dwt Handysize vessels, which are under construction
at a first-class shipyard in Korea and scheduled to be delivered in the
first quarter of 2011 and third quarter of 2012, respectively. Once
delivered, each vessel will be immediately chartered-out for 12 years at
a floor rate of $12,000 per day plus 40/60 profit sharing above $14,000
to a first-class European charterer. Upon delivery, the vessels are
expected to add approximately $5.0 million in annual vessel EBITDA based
on prevailing market rates.

As part of the second dropdown, NewLead also secured the right of first
refusal for three additional newbuildings from Grandunion. The three
newbuildings are 81,000 dwt Kamsarmaxes, being constructed at a
first-class shipyard in Korea, scheduled for delivery in 2013 with
long-term charters attached.

Sale of Non-Core Vessels

In April 2010, NewLead divested two no-core vessels, the Chinook and the
High Rider, for a total consideration of approximately $14.9 million.

In July 2010, NewLead signed a Memorandum of Agreement for the sale of
the High Land, a 1992 Japanese-built, 41,450 dwt, MR tanker for a total
consideration of approximately $4.3 million, consistent with the
Company’s announced intention of selling its non-core assets.

The divestiture of the Ostria and the Nordanvind is expected to conclude
during the third quarter of 2010.

Divesting these inefficient vessels is expected to favorably impact
adjusted EBITDA from continuing operations by approximately $7.8 million
annually. NewLead plans to use the net proceeds from these sales to
renew its fleet or reduce its outstanding indebtedness.

Furthermore, in January 2010, NewLead completed the sale of its
container vessels, the MSC Seine and the Saronikos Bridge, for $13.0
million of gross cash proceeds. A portion of these proceeds was used to
pay down outstanding debt. As a result of the sale and delivery of these
vessels, NewLead exited the container market. Accordingly, the results
of operations related to the container market are reflected as
discontinued operations.

FINANCIAL RESULTS

For the following results and the selected financial data presented
herein, NewLead has compiled consolidated statement of operations for
the three and the six months ended June 30, 2010 and 2009. The
information was derived from the unaudited consolidated financial
statements of the successor and predecessor business (all financial
results subsequent to October 13, 2009 are reflected in the SUCCESSOR
business). EBITDA, adjusted EBITDA and adjusted EBITDA excluding
non-core vessels are non-US GAAP financial measures and should not be
used in isolation or substitution for the predecessor and successor
results. Furthermore, with the exit from the container market and the
addition of dry bulk vessels, NewLead will focus its operations and
strategic initiatives on the tanker and dry bulk shipping markets. As a
result, NewLead reports its operations in two operating segments, the
“Wet” and “Dry” which will include the results of operations for the
product tankers and dry bulk vessels, respectively.

(1) Adjusted EBITDA for the three months ended June 30, 2010, excludes
$3.2 million for impairment loss, $0.3 million for a non-cash gain in
the fair value of derivatives, $0.7 million for stock-based compensation
expense, $0.014 million for doubtful receivables, $0.6 million
provision for claims as well as $0.2 million for the straight lining of
revenue.

(2) Adjusted EBITDA for the three months ended June 30, 2009, excludes
$1.2 million for a non-cash gain in the fair value of derivatives, $0.1
million for stock-based compensation expense and $0.007 million for
doubtful receivables.

For the second quarter ended June 30, 2010, total revenues from
continuing operations increased by 138.9% to $25.8 million compared to
total revenues of $10.8 million recorded for the quarter ended June 30,
2009. This increase in revenue is primarily attributable to the 82.2%
growth in NewLead’s fleet and the corresponding increase in available
and operating days of 95.1% and 104.3%, respectively, reflecting
management’s initiatives to continue its fleet expansion strategy and
bring operational, commercial and technical management capabilities
in-house. This revenue growth was partially offset by an increase in
direct voyage expenses of $3.3 million to $4.7 million, representing a
235.7% increase from the $1.4 million incurred during the second quarter
of 2009 as a consequence of an increase in the number of vessels
operating on the spot market during the second quarter of 2010. The
number of days for vessels operating on the spot market has increased by
98.6% to 423 days in the second quarter of 2010 from 213 days for the
relevant period in 2009. For the quarters ended June 30, 2010 and June
30, 2009, NewLead’s time charter equivalent (TCE) rates were $14,716 per
day and $13,761 per day, respectively. This increase is mainly
attributable to the favorable charters attached to the vessels that were
incorporated in NewLead’s fleet, which was partially offset by the
decrease in the charter rates of the vessels operating on the spot
market.

Fleet utilization for the quarter ended June 30, 2010 was 88.1% compared
to 84.2% for the second quarter of 2009. Fleet utilization for the
quarter ended June 30, 2010 was suppressed by 166 unemployment days,
mainly attributable to the inefficient performance of NewLead’s non-core
vessels, which were primarily operating on the spot tanker market.
Excluding non-core vessels scheduled for divestiture during the third
quarter of 2010, fleet utilization for the second quarter of 2010 was
97.4%. During the second quarter of 2010, 72.0% of NewLead’s fleet was
fixed on time charters compared to 73.0% in the same quarter of 2009,
which is in line with NewLead’s chartering strategy to have 60.0%-80.0%
of its fleet on period time charters.

Adjusted EBITDA from continuing operations for the quarter ended June
30, 2010 was $7.9 million, compared to $2.1 million for the quarter
ended June 30, 2009. Adjusted EBITDA for the core vessels doubled from
the first quarter to $10.1 million, reflecting a 146.3% increase
compared to second quarter of 2009. This growth in adjusted EBITDA was
primarily attributable to the increased operational contribution in
total revenues related to the aforementioned 82.2% operating fleet
growth and 17.3% reduction in daily vessel operating expenses relative
to the second quarter of 2009.

Net loss from continuing operations was $20.2 million for the quarter
ended June 30, 2010, compared to a net loss from continuing operations
of $3.9 million for the quarter ended June 30, 2009. The results for the
second quarter of 2010 reflect the higher operating contribution, as
previously discussed, but were more than offset by higher non-operating
expenses which include interest and non-cash charges such as
depreciation and amortization. Excluding non-cash charges reflected in
interest expense, primarily attributable to the $3.6 million
amortization of the beneficial conversion feature embedded in the 7.0%
convertible senior unsecured notes (“7.0% Notes”) and $0.7 million loss
from the change in the fair value of our interest rate swaps, interest
expenses were $8.6 million representing a 152.9% increase, reflecting an
overall increase in indebtedness relative to the second quarter of
2009. Depreciation and amortization increased by approximately 197.3% to
$11.0 million during the three months ended June 30, 2010, compared to
$3.7 million during the equivalent period in 2009, reflecting the 82.2%
increase in operating fleet growth compared to the prior period as well
as the amortization of intangible assets created as a result of the 2009
recapitalization. In addition, the results for the three month period
ended June 30, 2010 include a non-cash impairment loss on vessels of
$3.2 million related to the pending sale of the High Land, a non-core
vessel. Moreover, the results for the second quarter of 2010 included a
$0.3 million non-cash gain from the change in the fair value of
derivatives compared to a $1.2 million non-cash gain in the second
quarter of 2009, as well as transaction costs of $0.4 million mainly
relating to the dropdown which closed on April 1, 2010.

Net loss for the quarters ended June 30, 2010 and 2009 was $20.0 million
and $8.2 million, respectively. This loss includes income from
discontinued operations of $0.2 million in 2010 and a loss of $4.3
million in 2009, which were primarily related to NewLead’s exit from the
container market.

Loss per share from continuing operations, reflecting the 1-for-12
reverse stock split of its common shares, was $2.84, compared to $1.65
for the equivalent period of 2009. This loss does not include the
earnings per share from discontinued operations of $0.03 for the three
month period ended June 30, 2010 and the loss per share of $1.79 for the
equivalent period of 2009. For the second quarter of 2010, the loss per
share (from both continuing and discontinued operations) was $2.81 for
the second quarter of 2010, and $3.44 for the second quarter of 2009.

Source: NewLead Holdings Ltd.