Q1 2020 Earnings Call
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Later, we'll conduct a question and answer session and instructions will follow at that time.
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As a reminder, this conference call is being recorded.
I'd now like to turn the call over to your host the Gallery Vogel, Chief Executive Officer, and Frank because Centsone Chief Financial Officer of Eagle bulk shipping Mr. Vogel you may begin.
Thank you and good morning.
I would like to welcome everyone to Eagle Bulks first quarter 2020 earnings call.
To supplement our remarks today I would encourage participants to access a slide presentation.
Now I want our web site at Eagle ships Dot com.
Please note that part of our discussion today will include forward looking statements.
Statements are not guarantees of future performance.
Currently subject to risks and uncertainties.
You should not place undue reliance on these forward looking statements. Please refer to our filings with the Securities Exchange Commission for more detailed discussion with the risks and uncertainties and they have a direct bearing on our operating results or performance and our financial condition.
Our discussion today also includes certain non-GAAP financial measures, including EBITDA.
Adjusted EBITDA MPC, please refer to the appendix in the presentation and our earnings release filed with the Securities Exchange Commission.
More information concerning non-GAAP financial measures and a reconciliation to the most comparable GAAP financial measures.
Before discussing figures today.
To begin by saying that our thoughts are with all of those who have been impacted by the loss of relatives or friends as well as those suffering health wise or otherwise from the covert 19 global pandemic.
We are also extremely grateful to the health care professionals and all those putting themselves a great rests on the front lines the benefit of the global community.
And we are indebted to all of our crew members and the broader seafaring community, who continue to sell on ships and do their part to keep global supply chain Jochen. Many who are now would be on their contractual employment grades and away from family and home.
As a company we remain focused on the health safety and wellness of our employees on shore based and shipboard personnel.
In this regard for providing our ships would pp equipment and testing kits and have implemented protocols to minimize potential infections eliminate ship visits for non essential purposes and by minimizing interactions with external personnel.
We will continue to follow guidance from the relevant organizations and authorities and make adjustments as necessary.
Notwithstanding current restrictions in challenges. We're also working to be able to begin to affect wide scale crude changes again soon in order to allow crew members to travel home and brings seafarers onboard in a safe and efficient manner.
Sure.
A global staff has been working remotely since March.
I'm pleased with how our team across the globe have adjusted to this new reality of collaboration and execution remaining very high levels. Despite her disruptive work environment.
Now please turn to slide five.
Baltic Supramax index or B S. I remain weak during Q1 of the backup traditional seasonal weakness relating to increased newbuilding deliveries and the Chinese new year.
It was further pressured by switched a higher fuel cost brought about by the IMO 2020 related fuel switching.
Rates as of the end of December four around $8300 per day continued down during the first half for the quarter, reaching a low 50 152 on February 13th.
Despite the initial outbreak of covert 19 in China, and the negative impact it had on economic activity there driven by the extension of the lunar holiday break and general shutdown of the country rates started to recover and the B S. I was back up over 8300 again on March 18.
However, beginning mid late March the outbreak of Cowen Nineteenx implications to global economic activity started just spill over say the rest of the world the country's enacting broad restrictions and closures of mine supply chains imports.
This in essence created both a short term demand as well as a cargo supply shock to the market driving rates down rapidly by $2000 ingest 12 days to 62 50 by quarter end.
Against this highly volatile backdrop ego achieved a net CCGT for the first quarter $10075 per day, equating to a market outperformance of $3838 for 62%.
We were able to achieve this outperformance by successfully executing on our active management approach to trading and by benefiting from operating scrubbers on the majority of our fleet.
We calculate that the outperformance contribution was about evenly driven between these two factors.
Moving into Q2 covert 19 has watched a massive disruption in global trade and cargo flows. Additionally, the precipitous drop in fuel prices brought on as a result of demand destruction from the virus and then further exacerbated by the price war and excessive oil supply has been negative to the industry.
Putting eagle.
For Drybulk cheap fuel encourages faster steaming across the board, which increases effective vessel supply and separately.
It makes older and less efficient shifts more competitive on a relative basis at least for the time being.
Secondly that fuel spread between very low sulfur fuel oil for BLS, CFO and heavy fuel oil for HFO, which drives scrubber related revenue has weakened.
The decrease and fuel spread is due in part to historically low headline crude oil prices, but also as a result of the massive demand destruction for mid displays such as jet fuel and diesel oil.
Fortunately, we hedged about 25% of our scrubber fuel spread exposure for both 2020 and 2021 prior to the impacts mentioned about when spreads worldwide.
As you would expect these hedges are now well into money, representing our current mark to market value of almost $10 million, including about 600000 realized in the first quarter and providing a significant contribution to the bottom line.
It is also worth noting that wall fuel spreads are currently at depressed levels of around $70.
Her time equal should still be able to generate roughly $15 million an incremental cash flow per annum. On this figure which is in addition to the spread hedges I previously mentioned.
So far in the second quarter B S. I had averaged approximately 4724 per day, representing a drop of 28% as compared to the average of Q1.
As of today, we have fixed about 67% of are available days for the second quarter had a net tc of $8110 per day, representing significant current outperformance of roughly $3000.
Looking further ahead towards the second half of the year. The current after I say curve is trading at a higher be ESI level of about 8000.
Well, we don't typically disclose specifics around our forward essay hedged positions given the current environment. We believe it is beneficial to disclose that.
As of today, we have an effort they hedge position just over 20% of our own sleep in excess of $9000.
We believe these hedges combined with a forward cargo bulk fuel spread hedges.
Rubber contribution and our active management strategy are all important revenue drivers God help equal navigate this unprecedented market disruption.
Although Frank will provide more detail later on in the call I think it's also important to highlight and we maintain a strong liquidity position with cash and Undrawn revolvers as of March 31, totaling almost $95 million. An addition to this we own to unencumbered modern scrubber said it ultramaxes as well.
Please turn to slide six.
EBITDA adjusted for certain noncash items totaled $18.8 million for the first quarter, representing a significant increase in operating performance over the prior period. Thanks in part to higher commercial utilization achieved. Additionally, I'm very pleased to be able to report that our scrublands Kuwait.
One program was fully completed on April eight and as such going forward, we expect our off hire days to revert back to historic levels related primarily to statutory dry docks.
With that I'd like to be about trying to call over to Frank who will review our financial performance.
Thank you carry.
Please turn to slide eight for a summary of our first quarter 2020 financial results.
Revenue net of both voyage in charter hire expenses totaled 41.8 million for the first quarter.
Essentially flat from the prior quarter.
It's important to note that we were able to keep the topline flat despite a circa 40% fall into be aside.
Our significant outperformance to the index can be attributed to our commercial platform and the benefits realized spire scrubber fitted fleet.
The company reported a net loss of 3.5 million for the first quarter for a loss per share of five cents, both basic and diluted.
Adjusted EBITDA came in at 18.8 million, an increase of 9 million or 92% from the prior quarter.
Operating performance benefited from a positive 8 million gain on or hedge book, which protects the company from its fuel spread exposure related to operating scrubbers.
Q1, adjusted EBITDA also benefited from an increase isn't billable days.
The off hire days related to scrubber installation program were significantly lower.
Let's now turn to slide nine for an overview of our balance sheet liquidity.
Total cash as of March 31st 2020 was 72.2 million inclusive of 3 million of restricted cash.
Representing an increase of roughly 13.1 billion from year end.
The increase in cash was driven by 47.5 million dollar in proceeds from revolving credit facility draw Downs.
In part offset by Capex spending on scrubbers and ballast water treatment systems.
Any principal payments on our ultra coat debt facility.
Total liquidity was 94.7 billion and it's comprised of total cash of 72.2 million.
In 22.5 billion of Undrawn revolving credit facilities.
Total gross debt excluding debt issuance cost at March 31st was 516.4 million an increase of 41.7 million from the prior quarter.
The increase in debt is primarily due to the revolver draw Downs, a 45 million on our ultra co debt facility in 2.5 million ownership co Super senior facility.
Impart offset by principal repayments totaling 5.8 million.
Please turn to slide 10 for a first quarter 2020 cash Walker.
At the top of the slide you can see that net cash used in operating activities came in at 12.1 million.
I don't from 2.7 million in cash provided by operating activities in Q4 2019.
The chart also shows the timing driven variability that working capital introduces to cash from operations as demonstrated by the differences between the dark blue bars.
Which are the reported cash from ops numbers in the light blue bars, which strip out changes in operating assets and liabilities essentially working capital.
As the chart demonstrates the volatility caused by working capital largely evens out over time.
It's a relatively large difference between those two bars in Q1 can be explained primarily by two items first is 7.7 million dollar unrealized gain on our derivative instruments recorded in other current assets, which will be reversed in future quarters as the hedges roll off or are we.
Choose to monetize our positions.
Additionally, we had bunker payments of approximately 4 million accrued at the end of last year and paid in early first quarter.
The chart at the bottom of the slide.
Leaves out the changes in the company's cash balance in Q1 2020.
The two large bars on the left revenue and operating expenditures are a simple look at the operations.
To the right you will find the bar covering the 5 million of Drydocking costs in Capex of 80 million for scrubbers and ballast water treatment systems.
The 48 million dollar bar represents net proceeds from the revolving credit facility draws and finally, the bar totaling 11 million represents the debt principal and interest paid in the quarter.
Let's now review slide 11 for our cash breakeven per ship per day.
For Q1, 2020 cash breakeven per ship per day came in at $10784.
$805 lower than Q4, and $704 higher and full year 2019 cash breakeven.
The 805 dollar quarter on quarter decrease was primarily the result of lower debt service and Drydocking costs in part offset by an increase in Opex.
Q1, 2020 vessel expenses for optics came in at $5209 per ship per day.
As we have seen in prior years. It is not uncommon for Q1 to come in somewhat higher as a result of annual expenses.
In addition, opex was impacted by elevating tours and spares due to initial stocking of newly acquired vessels as well as the purchasing of critical Spears for the scrubber fitted sleep.
In Q1, 2020 dry docking came in at $1138 per ship for day $172 lower than Q4.
The quarter on quarter decrease was driven by a decrease in the number of dry docks completed.
Cash DNA in Q1 2020 came in at $1505 per ship per day.
$158 from Q4 and $176 lower than the full year 2019 result.
It is worth noting that our gene a per ship calculations based only on our own vessels. In this regard if we were to include the.
The children days in the calculation for Q1 Gionee per ship per day, it would be $1329.
Cash interest expense for Q1 2020 came in at $1655 per ship predates which is $75 higher than in prior quarter.
The increase is primarily due to increased yet from revolver draw downs and a decrease in interest income.
Well.
An increase in ownership days.
Cash debt principal payments in Q1 2020 came in at $1278 per ship per day, which is $751 lower than the prior quarter.
The decrease is attributable to the fact that Q4 2019 included a principal repayment on our Norwegian bond debt.
In terms of Capex as noted by carry earlier, we completed a scrubber installation program in early April.
And as such Capex related to this program will end in Q2.
Looking ahead as a result of cobot 19, the U.S. Coast Guard instituted a program, allowing for the deferral of the installation of ballast water treatment systems for up to one year.
Earlier this week, we received approval for 18 such extensions.
Given the current environment, we expect we will differ a number of installations and that's such capex related to ballast water treatment systems will be reduced in 2020.
We will provide further updates as final determinations are made in the terms of timing in quantum.
Additionally ends in response to cover 19, we have reduced certain gene a costs.
This concludes my comments I'll now turn the call back to Gary.
Thank you Frank.
Please turn to slide 13.
Here, we depict the be ESI year to date performance plus the forward curve for the balance of the year as compared to 29 team and prior years.
As you can see B S high has historically decline throughout the first quarter bottoming out in mid February.
Index typically post the strong recovery between mid February through the end of March as China comes back online post the lunar new year holiday.
To put this into perspective historical average recovery percentage MBS side, a mid February whoa through the end of March is around 60%.
And this year it was no different until that is the outbreak of cobot 19, starting to spread across the world impacting tree cutting boat vessel demand and cargo supply.
On the demand side countries like India, the second largest coal imports in the world saw their requirements to reduce as power plants started to operate and lower capacity due to weaker demand for electricity arising from the shutdown across the country.
In addition restrictions enacted on imports and internal transportation have caused bottlenecks and even further disruptions to imports and cargo flows in general.
On the supply side countries, such as South Africa, and important exporter of Drybulk shutdown minds, and curtail port operations, leading to a sharp drop in cargo flows out of that country.
One bright spot has been south American grain exports, where Brazil has export at 35 million tons through April up 29% year on year.
Unfortunately, this has been happening in the midst of a reduction of cargo volumes across virtually all of their commodities.
Yes, I bought and about two weeks ago at just about 4000 has has been grinding higher because we're seeing country solely come back on why increasing in each of the last and trading days, China appears to be at the forefront in terms of getting back to business, we're seeing others began to increase activity as well.
South African mines are starting to ramp back up and cargo loading in most parts across the world. We believe that as the world is coming back online and will be a slow normalization and trade flows and a continued recovery in rates.
The forward curve is supportive of this expectation with Q4 currently trading around the low to mid eight thousands.
Please turn to slide 14.
That's something that supply growth was fairly flat as compared with the prior quarter increased newbuilding deliveries, partly offset by increased scrapping.
Deliveries are typically elevated in January for scrapping was expected to increase given weakness in spot rates.
Total up 131 dry bulk vessels were delivered in Q1.
Well 47, one to demolition.
I think it's important to note that Q1 deliveries and scrapping were not significantly affected by the outbreaks of Colgate 19, but that is not the case for Q2.
Ship demolition came to a screeching halt in late March.
As countries like India, Bangladesh, and Pakistan, and actually locked down snort or prevent foreign crudes from transiting through and potentially bringing the virus ashore.
Prior to this quarter it would've been difficult to envision a scenario was such a week rate environment and virtually no scrapping, but that is exactly what has transpired.
Well Newbuilding deliveries there is a general consensus that there will be delays, but it's a bit too early to tell exactly what the extent of the impact will be on this quarter or for the year. In addition to delayed.
Please turn of vessels logistics relating to crude travel are very challenging at the moment, making deliveries difficult.
In terms of forward supply growth things look positive, whereas the Drybulk order book currently stands at 9% and for the Supramax off from that segment, just 6% the lowest level in 20 years.
For 2020, Drybulk net fleet growth is expected to come in at 2.5%. We believe it's likely that that number will come in lower with increased scrapping junior the weak market conditions once restriction disease at the primary recycling countries mentioned earlier.
In addition, aside from delays on the ship building side, there's a likely potential than many owners will look to push out newbuilding deliveries given prevailing market conditions.
Total of 38 Drybulk ships were ordered during Q1 to put this in context. The quarterly average during 2018 or 19 was almost 100 ships as one would expect we believe Q2 figures will be even lower.
As we indicated on our last earnings call to do a number of factors, including the price advantage of second hand ships versus new buildings as well as uncertainty surrounding future propulsion technology and now the impact of cold in 19, we remain confident that we will not see a material increase in ordering for the foreseeable future without a significant.
And pick up in rates first.
Please turn to slide 15.
Global growth expectations for 2020, I've been revised significantly downwards since our last earnings call due to the implications from Kogut 19.
Imap is currently projecting global GDP to contract by 3% in 2020, and then posted strong recovery in 2021 before reaching a more normalized state by 2022.
As you can see from the chart, though is a wide range in GDP forecast to the extreme uncertainty how the global economy perform through the current crisis and beyond.
Following in the same path Drybulk growth projections for 2020 had been significantly revised downward as well given how Carl that'd be industry has been global economic output.
The decline in overall drybulk demand of around 4% is projected for this year. However, it's important to note that the contraction is weighted towards the first half implying that we are potentially near the end of the decline in trade demand and the start of the recovery.
Commodities, which are most likely the impact in short term include some men coal and steel, whereas some cargoes to green are not expected to materially impacted clarksons, it's still projecting a year on year increase grain shipments are roughly 2%.
As countries begin to open up their economies. We believe there will be an actual replenishment of stockpiles, which had been drawn down and then there is substantial reason start precedent to believe that global efforts of economic stimulus will find their way to infrastructure projects in many countries, which is very supportive to dry bulk demand clear.
Really.
These are unprecedented in challenging times, having said this we believe that the medium to long term fundamentals remain favorable for drybulk and particularly in the Supramax Ultramax segment as such I believe Eagle remains well positioned to navigate through this uncertain period, given our people our market position our active owner operator model.
And our solid balance sheet with that I would now like turn the call over to the operator and hence for any questions that you may have operator.
Thank you with the prepared remarks completed well now open the line for questions.
As a reminder to ask a question you would need to press star one on your telephone to withdraw your question press the pound key.
Please standby, we compile the Cuban a roster.
Yeah.
Our first question comes from the line of John Chappelle from Evercore. Please go ahead.
Thank you good morning, guys.
Good morning, John.
Gary.
Sure Gardner.
Active manager.
Situation that we're in right now I mean, obviously the flexibility firstly just on your strategy was what is your key differentiators are certain converts the issues at the seafarers with certain regions would hard and others compounds.
Production.
Great if your fleet.
I didn't impact.
On your flexibility going and quite frankly are performance.
Yeah. Thanks for that I mean first of all the answer is yes, it's changing because you know that's one of the benefits of having fun Interactive management platform is is the team is making real time decisions you know on all the time I mean, one thing as you would as you pointed out you know with certain court restriction.
He's being at sea is really the best place for ship.
So all things being equal choosing longer duration voyages.
Where you're at sea longer as we get through this you know locked down period.
If you will has been something we focused on ER and that's had some impact of course on how we normally would trade. The other aspect is is that the front haul market we call. It pent up demand when you when you invest to come to the Atlanta has really evaporated at the moment given the low level, So where do you typically would maybe be sending more ships out.
Your your you're holding back to try and you know potentially benefit from that when we believe demand will come back. So he's the simple answer is we made many changes you know on on a daily basis, all trying to put ourselves in the best positioned to not only.
No go live or this quarter, but but be able to deliver the maximum value has things normalize going forward.
<unk>.
Thank you for that second question.
I know that your response crushing shouldn't you answer that but I'm going to cut that on the car.
In particular with regard to answer where I would predict this conference call and everything you're hearing from the fuel hedging silly, but they haven't seen pretty active manager.
On the differentiation on all the outperformance relative to the outside.
And then I looked at an equity crying for western superstar for.
Yes, it would be.
Depending on the restaurants, it's close to that.
What do you do get credit for all the differentiation that you can put minutes. Since then there senecas there to the point, where you just don't.
What's the next time.
Yeah, well, that's a there's a lot of time pack, there and I, probably could speak for awhile, but what I would say as we continue to do what we're doing and it and it matters I talked about the fact that we have $10 million a mark to market on our on our fuel hedges and if we monetize that or you know.
She is to crystallize it probably are they roll off without changes to that spread that's cash on the balance sheet and the outperformance. We believe matters. So at the moment. Unfortunately, I think you know the entire.
Industry is in a situation, where you know the macro environment is overwhelming in terms of the headlines, but we continue to execute and I believe we will get credit for that so I'm not going to go with what happens when we don't because I believe if we continue to execute a we continue to too.
Run the company with good governance.
I do think we'll get credit for that and I think it'll be reflected long term.
Mhm.
Thank you spoke Oscar.
Okay. Thank you.
Thank you as a reminder to ask a question you would need to press star one on your telephone to withdraw your question press the pound key.
Your next question comes from Randy given the from Jefferies. Please go ahead.
Good morning, gentlemen, this is Chris Robertson on for Randy Thanks for taking my call.
Good morning, Chris.
Hi tight on a.
Once the oil prices start to recover and fuel becomes more expensive can you can you walk us through your thoughts around how much effect of supply gets removed from the market based on your comments in the prepared remarks about.
Older tonnage trading at the moment and also a thing speeding up.
Yes, sure I mean, what what we're seeing today in terms of fuel pricing you know, it's actually it's interesting given the decline in crude we're seeing deal as CFO price is not that dissimilar from where heavy fuel prices were going in the latter part of the year. So while we.
You are expected to see a significant slow down in vessels in you know in this year because of the switch over based on IMO 2020, and it and it it started happening and now with a with a fall back and prices were pretty much back at speeds, where we where we were you know in Q4 I think in general notwithstanding the.
Market is weaker so so that has an impact as well, but in terms of fuel price, we're kind of where we work because things ramp back up you know has historically we've looked at.
No prices of the 450 500 dollar level potential you're talking about four plus percent out of the market on a straight line basis ships follow their optimal speed curve as I've said before in our calls you know we don't decide what speed to sell our ship sat there is a computer speakers your models that tell us.
The optimal speed is which is an input of both the fuel price on the rate environment that the ship is then.
Thanks for that.
Hi.
Can you give us any color around the slowdown in the grain trade from Argentina. The season due to the low river water levels was this just simply offset by the strong Brazilian outperformance.
Yeah, I mean, a you know soybeans, Brazil dominates and and Latin America and so the answer is yes, and Brazil has by far the largest exports to China. So River River levels, you know matter significantly in terms of.
Economics for for the freight costs, but obviously given the weak environment right now, it's not as pronounced but ultimately it really is about Brazil in terms of drybulk for for the grain trade at this time here.
Gotcha, and then I have a modeling question. If you don't mind you gave some off hire days guidance in the release and I was wondering if you could break that down on a per vessel basis by quarter.
In terms of maybe out number of vessels.
Yeah, Let me Oh, you put that went over to Frank to answer that.
Hey, Hey, Chris.
I think its best we take that offline.
How about in Fisher right in front of me at the moment. So we couldn't pick this up after the call. If that's okay sure happy to follow up.
Sure. Thank you.
All right. Thanks, guys appreciate it.
Thank you.
Thank you I show no further questions in the queue at this time I like to turn the call back over to Mr., Gary Vogel, Chief Executive Officer for closing remarks.
Thanks, very much a we don't have anything further so I'd like to thank everyone for joining us today and wish everyone to be safe and healthy.
Thanks, again have a good day.
Ladies and gentlemen, this concludes today's conference call. Thank you for participate and you may now disconnect.
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