Q1 2020 Earnings Call
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I would now like to have the conference over to your Speaker today, Chief Financial Officer Cusick. Your shirt. Please go ahead.
Thank you operator, thank you all for joining us today.
Well Nicole would meal.
One allowed ROE or chairman and Chief Executive Officer, Robert Bugbee President.
And Mckee, our Chief operating officer.
We have Michael Frenchie, our Chief Accounting Officer, David Moran, managing director and James Doyle Senior financial analyst.
Earlier today, we issued on Twentytwenty first quarter earnings press release, which is available on our website.
Nation discussed on this call is placed on its information as of today, maybe 11 Twentytwenty may contain forward looking statements that involve risk and on Shelton chief.
Actual results may differ materially from both set forth in such statements.
For a discussion of these risks and uncertainties you should review the forward looking statements disclosure in the earnings press release, So we issued today as well as Scorpio Bulkers FCC filings, which are available at www Scorpio Bulkers Dot com FCC Dot Gov.
Call participants are advised to the audio this conference call. This spring food cost life on the Internet and there's also being recorded for playback purposes.
An archive of the wet cost will be made available on the Investor Relations page of our website for approximately 14 days.
There's also a short supplemental presentation slides, which are available at W.W.W. Scorpio Bulkers dot com on the Investor Relations page under reports from presentations.
If you have any specific financial modeling questions you can contract.
Myself, James So Michael and discuss these offline.
Now I'd like to introduce a memory Laura.
Thank you.
Welcome to all then thank you for your time today.
Before we started discussing and commenting on our results I wish to take the opportunity to convey to everyone.
On behalf of Scorpio Bulkers management.
It's directors and employees, our deepest seen put these stores those who have lost loved ones or have been affected by the koby 19.
Why do we have been squarely focused on the has been safety of our stuff.
Both ashore and onboard.
We feel tremendous gratitude towards the healthcare workers first responders and others are on the front line of the response to this button that make.
Getting to business Scorpio Bulkers provides dry bulk spot market exposure of our to our shareholders with the best in class.
Fleet of modern Ultramax and Kamsarmax vessels.
We have significant gearing to any improvement in the market and we have made a conscious decision to keep our future days open and unhedged, we have taken proactive measures to strengthen the balance sheet.
Given flexibility to the company with over $110 million in cash liquidity at this point.
Our performance year to date has been challenged by specific onetime reasons.
First we have had the surplus of vessels in the far east.
As we look to reposition for dry docks in scrubber retrofits during the traditionally weak Q1 market.
The need to reposition tonnage to the premium Atlantic markets using Bekele voyages created a fair their drug into Q2 as trade further slowed down with the pandemic.
Secondly, the ropey dropping fuel prices at the end of Q1 and early Q2 meant we were consuming expensive fuel for a good part of the period.
With our spot strategy, we tend to have 30 to 60 days or fewer on board at any one time.
There are four historical fuel prices were substantial negative contributor in the quarter.
Particularly on our non scrubbers equipped fleets, but also on the numerous vessels that event that dry dock between December and January This year January December 19 in January this year, we'd expensive fuel on board, which they had to burn.
Born the re entry into service in March or April.
Westerly already there be appearance of some positive momentum we can see that's still in eyes that we can see that's still an isolated pockets April has been the record levels has seen record levels of Brazilian soya beans exports southeast Asia coal imports EBIT.
Crees, notably in Vietnam April imports are up year on year more than 150% in the Philippines up more than 120% year on year, Thailand, and Malaysia, respectively are up 37 and 26%.
Why sour chartering strategy remains geared towards an improving market.
Management has taken separate on measures to strengthen the balance sheet.
We have reduced our fleet size last year with where the time sales we've entered into several sale lease backs on beneficial terms.
We have reduced our discretionary capex by deferring further scrubbed better retrofits.
We have reduced the current dividend by 75% to preserve further liquidity.
And lastly, we have disposed of over half of our residual shareholding in Scorpio tankers, I'd say profits, providing cash liquidity of nearly $43 million.
Our total return on the investment today is around 30%.
We are positive of future gains in this investment so we expect to hold our residual 3.7% stake adjusting for the foreseeable future.
Taken together with the measures above our balance sheet now has the liquidity to allow us substantial flexibility in our decision making.
We are positioned to withstand any weakness that may persist and without a modern fleet. We are well set to capitalize on any upturn in the second quarter and beyond.
As the global economy, Reaccelerate, India effect of the pandemic start to ease off.
I am done with my initial remarks, and I would like to turn the call to Hugh Baker.
Thank you and while it.
I'll briefly summarize certain recent significant events and significant events during the quarter, but for more detail. Please refer to this morning's earnings press release on the supplemental Onyx presentation.
In March and April Twentytwenty company executed some lease much to ultramax vessels and one time she much Russell for approximately 67.3 million they're not.
Increasing the company's liquidity by $33.6 million.
In March Twentytwenty, but somebody entered into agreements to sell the SPR Jack you're right. That's the I tourists, which are 2014 in 2015 built ultramax vessels.
And the SPR Valero like 2015 builds kamsarmax vessel for approximately 53.5 million an acquisition.
Delivery of the SPR, Jack Youre NSPI choice to that buys took place in April twentytwenty well the delivery of USPI Valero is expected to play to take place later this month.
In aggregate. These three sales would have increased liquidity by approximately $18.3 million.
In April Twentytwenty, the company reached an agreement with certain counterparties to postpone the delivery of absorbs fast cleaning systems will scrubbers on searching the vessels, but at least 12 months at no additional costs to the company. This will delay the payment of between 20 and $25 million.
Spend to choose until 2021 of the earliest.
As of today stage 22 vessels have been installed what scrubbers.
It may Twentytwenty the company, so 2 million shares Scorpio tankers thing for approximately $42.7 million.
This amounts we will receive approximately $9.8 million and proceeds for the sale of 500000 boat shows on May 12, which is tomorrow.
As of today, the company retains a holding up 2.16 million shares and Scorpio tankers, which is expects to retain.
In April the company executed one for time reverse stock split.
And today, the company announced a dividend the second quarter five censorship.
Finally, I'll mention our cash position up at March 31st fit was 100 $100.8 million.
I'm sorry.
Sorry at March 31st our cash position was $50.2 million worse today marks the I watched the 11th it is $100.8 million.
Our cash position does not include that proceeds from $6.2 million from the previously mentioned the sale of SPR Valero expected within May and also excludes the 9.8 million of proceeds from the sale of Sting shares, but I just mentioned.
With with that I'd like to turn the call out of its a little bit Murphy.
Robert are you in music or.
Have you, yeah, sorry, sorry, yeah, sorry.
At a couple of things sort of menu and Hughes thing first thing is that the.
Do we can continue paying a dividend is a sign that we're in good shape for the banks that everything overseas in covenants. The relationships are as strong as you know that commonly is you know one of the first things that go if somebody's.
Not in good shape.
Second thing is is this an observation.
The cash that Sting will that he was talking about approximately 810 million plus the outstanding.
Value. This thing shares itself, that's equals the present market cap for the company.
Secondly.
We believe that the isn't my new points that <unk>, many pointed out the spot fleet is.
Ideally placed for market do we expect to improve quite substantially.
We also by definition was feel that selling of assets.
No longer provides value to the shareholder has done before.
As we would expect asset values to increase from that present.
Real sort of rock bottom levels.
And that.
That concludes the comments I have to make so we'd love to open it up for any questions. Please.
Thank you as a reminder to ask the question you will need to press star one on your telephone to withdraw your question press the pound cheat.
Please standby, while we compile that you want any roster.
My first question comes on line of Omar Nokta, Oh, Clarksons Plateau security Your line is open.
Hi, Thank you hi, guys.
You mentioned the you know you've built up a very nice cash position at the at the moment plus a bit more coming with the sale of the vessel and the the listing settling tomorrow.
Also shifted 20 25 million discover payments into next year at the earliest you've done sale lease backs and you sold shift. So great. You mentioned you see yourselves retaining bursting position that you don't see any more asset sales for now beyond just whats held for sale and just wanted to confirm on that front. The assets held for sale are those still the.
For Ultramaxes that you had announced earlier this year.
And then just secondly wanted to also ask you how does how to further say sale leasebacks fit into this I know those are more of a financing as opposed to sale, but just wanted to get some clarity on that.
Sure I think that look I think the way, we've got pretty a lot of things have happened in the loss.
The last week and I think that were indicating very strongly here that we don't think that did these prices that you know.
It.
One should be a seller.
With a dry bulk vessels one of those also indicating that we don't have to sell vessels any longer.
And so you know you might very well get to a situation do you know shortly where we may you know we may not feel that it did.
Go ahead with those sales.
Okay, all right and then.
Now, let's maybe Robert we had over.
Over the past couple of months, the sale and purchase market had quite a down due to the coke that crisis and people being locked and you have you seen.
That opening up obviously, you're able to deliver those two ships.
Well I think some luck confident through a large part of our confidence is a change I mean, where you can see that we've been active sellers of dry cargo vessels now.
But pretty well on a year I mean, it you know we we have.
Sold vessels regularly in virtually every quarter in one form or another through that through that period.
And.
But none of those sales are really really involved what I would cool very strong cash.
No buyers and the dry cargo market. The irony is is that.
Over this last five or six weeks that we've seen a number of unsolicited offers from.
Literally some of the all stars as a private shipping world in dry cargo these people Oh.
Cash buyers.
They see what happens in dry cargo in the stress, which is what happened in 2015, all 2000 and <unk> nine and that is that they have the web with old to go in.
By dry cargo vessels that are there a modern hold them for whatever it takes a year or.
It doesn't matter so much for their return is.
And you know wait for what they see is historically always being the inevitable recovery in a cyclical market and they can read more than anybody that.
No. The gross things that are going on so that's been a big change.
That's something that is.
Is it for timing Morrill in dry cargo the markets have been.
Really you know bellwether signs when they when the cash buyers start to look to buy vessels and this is what we've seen in the last five weeks.
So does that another reason why we are confident that.
You know, we see we were seeing the bottom being made in values.
The other thing is that compared to other times the public companies themselves or competitors are actually in much better shape than that that they've been traditionally the there's nobody has long unfunded new building.
Order books.
So.
The irony is is that may not be so many sellers of vessels that may not be so many bargains inverted commas to have because balance sheets are fundamentally better across the space.
I'm, sorry, I forgot to ask the question on the leasing that's always an alternative.
You know we would we would see that is one of you know.
This is another tool that would that we could add.
Going through time, if we if we needed to.
Got it. Thanks, that's really good color on the on that and also the flavor of the S&P market.
Good morning.
It's changed the huge changes going on the S&P market.
Sorry.
Yeah, no. Thanks, Rob I did want to ask just one more.
Just on undiscovered investments looking in the table.
The outlays about 46.7 million and on that that schedule. It shows, yes, 50 858 million untapped.
That's committed from a from your lenders I know that just down plus 56 ish after the Valero, but that's still well above the 46.7, that's due I am I correct, basically all scrubber investments from here or 100% scenario with the facilities.
She would you like yeah Youre right now I think we will obviously.
He adjusting the scrubber financing going forward to reflect the new revised schedule for off from Scrubber program, but obviously all the scrubber scrubbers work.
Essentially financed and so therefore, we are going to see.
You know the scrubber program.
Centrally gets.
Well this couple of financing will be amended.
To reflect the new dates.
Okay and as the.
They're not finance are you able to give a percentage of.
And what percent of remaining payments or are locked up either by the dot.
I I'd have to I'd have to look and I have to take that question offline.
Okay.
I appreciate it here, thank you and Robert Thanks, a lot for the for the market color.
Thank you. Our next question Thomas from the line of Randy Gibbons of Jefferies. Your line is open.
How did gentleman how's it going.
Good.
Alright.
First question I mean, I'm at Coffeyville conquered share sales you know on January 27.
Yeah, it's around 20000 Bucks <unk> at the time, it stimulates significantly undervalued or in terms of asking about selling stinginess. That's it may be sold about half of the since your last week for I guess my condolences here. So if your question why not sell those shares a few weeks ago, Oh, if that wasn't an option.
Why not sell enough right one thing that's expected to validate the current record levels and also why sell haplessness right, we're not making a corner normal or even all of them.
I think they got right, but I think they great questions I think on generally the 27 them.
You know, even the United States President so that grown of ours was gonna go away, but it didn't even exist in January the 27, and the the markets themselves want in wouldn't in.
The situation. They are now so that's 2020 hind side.
The the question related to you know sold.
You know, it's preference with being too of course to have held them I mean, the cell to cell intends to hold the rest of the position because its thinks that <unk>.
We previously stated that you know we think it's a good investment has been a great investment already produced 30% return.
But there is also very simple thing that hide Sting had sold.
Not so those shows again remember the so called choose 13. So the 13D affiliate owner. So it doesn't have the luxury of selling shares whenever it may want to.
So you had to make tight tight schedule to to take that opportunity to do that and looking at salt balance sheet.
I think that the difference is very simple that today, we're announcing a a balance sheet that is.
You know is very strong in its cash position very strong in its liquidity very very capable of dealing and keeping a fleet that we think should be kept on the spot market because we expect the market to improve.
Keeping a fleet together that's brand new best in class at the low point in the market, where we're saying there should be acid.
I said depreciation the the S&P market is changing as we speak.
And that's great.
And we have no issues whatsoever.
Had we not sold the shares of course, we hope we hope and we may even expect to distinguish says go up in value. Obviously, we do otherwise you know we would have so mobile.
You know do you still have to be cognizant that today nothing is guaranteed so he is stinks and make those sales.
Every sting shareholder Linda can sleep well at night, and we can focus on running the company again and looking forward.
That's the very simple position it it is zero to do with what Sting may think it. So it may think about Sting if he does quite the opposite Sting Fool two is all about.
So presenting.
A proper balance sheet to the market.
To to be able to run its fleets bought him. What they think is what we think is going to be an improving market.
Got it yeah I wasn't asked me why not selling general and World is certainly different than January and exactly right, yeah, but why don't they tend to generate was no I mean generally.
Then it was an age away in January that particular thing nobody in the world was thinking relating to <unk>.
What could happen at the time et cetera, et cetera, the market's fickle I mean sting itself or do you still on the on Wednesday.
Yeah record earnings record expectation for the second quarter. The rights is still extremely incredibly strong in the product market, but look what.
Total stock market did.
So.
Sold must.
I think independently the board is an independent board.
Must think bust.
On its own balance sheets in its own opportunity.
Prior to.
Maximizing any given value on one.
Investment.
Yes.
Yep.
Again, our thing I understand the timing as to not selling so not a lot.
Yeah exactly I mean, the question is good but it was there something specific about 43 million make or where did that number seems like that's out 2.25 million like how did that number come about.
Oh, there's no real science to today's perfect positions, but you know frankly, having 100 million hundred plus million dollars of cash right now so good.
Great.
Thank you very much last question as you mentioned.
Your Twoq you acquired the rates what kind of underperformed the benchmark for two reasons positioning fuel expense would happen.
Two questions on this yeah, there was a pretty big difference and Ultramax versus North America correct. There I guess youre talking for Carticel couldn't alternate that's cool and then secondly, how hovering around in the last on a week or so compared to the quarter because I'm just trying to get a center kinda occurring.
After quarter performance.
The rates Randy on.
You know I've not have not really moved in any directional weighing the lost a week ride you still have the industry indices with the Supramaxes make have making $4800 a day today. So any is always hovered around there for the past few weeks so you've had the low.
All the I think 4100 or something like that and then came back up a few on red box, but.
He has nothing to write told me about and Ah, yes on the.
First part of the question in terms of Kamsarmaxes and Alternators differential.
Yes, it's just that you know down to due to the positioning and to the fuel element, which I was referring to in my opening remarks, you know and I'll have to look into it into more detail.
But I attribute that to the fact that we had more alternators in that position compared to conjure masses.
All right. So it sounds like Ultramax rates, a little better now than your color coded state well, maybe cancers are little lighter Jesse.
Okay.
Oh, yes, probably that's a fair reflection, yes.
You know you have you ever Kamsarmaxes your Panamax indices now it seeks to.
Yeah, that's probably a fair reflection.
Great all right well, that's a great. Thanks again.
Thanks Randy.
Thank you. Our next question comes through Greg Lewis, a B T. I see your question. Please.
Yes.
Thank you and good morning, good afternoon everybody.
Hi, good you.
No I was just hoping you could give us some color.
Press release, you kind of you kind of help expected to you know that amortization.
Over the next few quarters, just just kind of wondering if they're gonna be you envision.
One of the hardest workings your frozen in shipping do you see any ability through maybe [noise].
You know refinance any this that the kind of maybe change that amortization schedule.
As we think about 2001 and maybe into the first half of 2021.
Yeah that's.
Greg that's a very good question I think that the you know we obviously if you go back sort of free and a half years ago. We did successfully in fact twice agreed to defer all amortization with orlando's.
I think that that is something that is beginning to appear in the drybulk sector, it's sort of started I.
I think that most of the drybulk companies, including Scorpio Bulkers offensive position.
To manage the downturn than they were.
You know three three and a half years ago, but I think the banks would be very supportive if we want to to make a request and clearly.
Everyone and thanks included are fully aware that we're in a different environment now than you were in January.
I can't say.
No I don't want to creates expectations.
But I think that if we want to drybulk companies, what you have sensible conversations.
With that with our lenders I'm I'm sure. That's you know amortization relief you know can be provided.
And certainly if we were too sick to go down that road I think.
We would get a very good hearing from them.
I think I'd like to add today, Greg that you know it listing general here is that.
The.
As it did in general the let the public companies are in much better position they weren't to 15 without these large sort of unfunded.
And delivered a bill Newbuilding books. The second is is that they're all companies like ourselves that.
Already proven to the banks that.
They can get through crisis that et cetera, and full so that those have improved well proven well trodden methods.
Doing that in terms of amortization, which which has been traditionally whereby you are willing to pay.
Some cash in advance to your present amortization and that met by a delay or moratorium on some of the future amortization and obviously one of the moves that sold has one of the benefits. So now has with all that.
Cash that it has on its balance sheet and that was present liquidity is it would have the ability to sit in front of the lender and be flexible and say we are willing to do this for you. If you are too willing to.
Delay.
I would position for US for example, if they would stuff to leave it at that for the moment.
Okay. That's perfect I take thank you very much the Don.
Thank you.
Thank you want next question comes from John Chappelle of Evercore.
A question please.
Thank you.
Got it I don't want to labor.
Right.
Given everything started about keeping the dividend.
The balance sheet.
So it seems like the timing on the price.
Kind of match up with that position of strength I get the uncertainty and preparing for the worse.
But at a time when seems putting a tremendous results and softens getting punished.
It's all kind of piled on a little bit moldable have shares it sounds like clean so I'm just.
Turning to paying off its filings I thought I understand you can put the show for quite a shows.
I think that's very easy you want it to.
You are limited you are very severely limited and youre.
In the trading okay in trading both in time, you know time.
Oh calendar and timing of dates.
The second aspect is as I've said before is that we.
You know it isn't a question of necessarily the timing or the sting position and.
The company is liquid and has this balance sheet because it just sold $43 million worth of shares.
Had we not so those shows I think the questions. Today, you would have been quite rightly something along with following lines, you've only got about $60 million with liquidity, you'll you know your cash.
Covenant is whatever it is $30 million you no we understand that you're optimistic for the future, but you'll fleet is a spot.
And right <unk>, president and running below all in breakeven.
How long can you lost doing this how are you able to create.
Flexibility et cetera.
So it is.
At a much different position now that you've sold those shares to the correct decision for sold was to sell those shares.
And stock price is a very fickle you know.
They could it say, yes, you could have hang out for two or $3, a $5 or $10 mall, but it would have been delayed stoltz, making its progress and able to take its opportunity.
And maybe we would have ended up.
Depending on what happened in the stock market.
Selling even moshe's later, which we certainly wouldn't have wanted to do.
Okay.
Help us understand the cracker number when we work in next restrictions I understand what's going on.
Optimistic and not the balance now, but it seems like that Mark is there another turn for the worse than most asset classes.
<unk>.
Next level of course this scenario when we heard the not slacker, it's a fair okay, Okay, where you got it.
It doesn't matter when it when the next quiet periods that you don't know when the next quite bit the next quiet period would be.
Whenever sting itself could be doing something.
At the moment you had material nonpublic information is John so the problem is that.
The board of Scorpio Bulkers, just did not first of all we're sending it to 30%.
Making a 30% profit on the investment over the P. of yes, it's not annualized these Tony over 18 months not over 20, but you know steel psychologically the board felt very comfortable with the investment it's still holding half of its position.
We don't want to run the risk of getting hold all being locked out by material nonpublic information that we we force potentially us not to be able to send the shares the board just decided very.
Consciously of taking the position all just put the cash on the balance sheets and let's hope we have wrong selling here, it's as simple as that 30, it was not not to more difficult conversation at the board level and and that's about it really yeah. I mean, you have to really understand it really understand that that literally so could go shop.
Town today.
If there was anything that Sting management.
With doing that it felt could.
Okay shouldn't need to be disclosed.
And that's not the right that's not the rice risk that so should take so should not take that risk when effectively.
No. It should do it is done which is take the opportunity to move a mediocre balance sheet to a strong balance sheet. Thank you move on.
Uh huh.
I mean, so 40 million shares in a week, where there was you know 700 $800 million while him.
[laughter].
Understood. Thanks for answers yes.
Sure.
Thank you. Our next question comes from Liam Burke of B. Riley FBR. Your question. Please.
Thank you good morning, Robert you talked about.
It seems to be active buyers in the market for us for assets for bulk assets for special assets.
Would you anticipate coated 19, driving up scrap rates further increase the value of these assets.
Oh, I I don't think that I I think all ships on new enough that the scrap prices are not going to affect.
Yeah, I'm going to affect in the short term al prices I think where scrap prices does matter is as you know as we move through this period.
You know it does act as a protection all the time in the sense that the you know if you start getting more increased in fuel prices you stop or you get a period of this plus the positive way you put pressure on older ships and if you get a.
The weaker market access the safety valve web bye.
Older ships get removed quicker from the market because as you say the scrap price goes up.
Okay, and a I'm a scrubber front.
Obviously, the spread between high low sulfur fuel that's been pretty tight.
Still comfortable Ah Hey, what's your best unless you've made and then continue with them through 2021.
Yeah, I think that in the longer time.
We will we haven't changed the thesis related to scrubbers.
And in many ways as the world has good great to shed going forward potentially if.
Middle East Oh, a Russian crude that you know that that spread could.
You know re widen and reward into a very significant level.
Thank you Robert.
Thank you. Our next question comes from Jay Men's Meyer of value investors edge. Your question. Please.
Good morning, gentlemen, thanks for taking my questions.
Good morning.
So you apologies if it's already covered I noted you push something here.
Hi, good saving some capex and it's tough environment is there any from my cancellation penalties or requirements and 21. If you wanted to pushing back further is that just kind of a gentlemen's agreement or any other details on that.
Cam how would you like to answer that.
We just can't comment on it right now.
You know we've been.
Very focused and it's been a lot of cooperation with the manufacturers the yards or to get these deferrals and what happens from here it'll be up to further discussions. We just can't provide you any any more detail on that.
Understandable figure I try to ask a look I mean, it's it's a challenging market in drybulk sector, you had to look around and raise some cash so it made sense maybe to sell dusting shares.
What other sort of levers can you Paul I mean, you have 100 million in cash that should get you through I would imagine most of this year, but if we wake up toward.
[music].
What are sort of the levers that you at all.
Well I don't think <unk> <unk>, Yeah, I can't I think that you as we've indicated earlier in the cool.
You know that's one of the beauties or have a taking the medicine and selling the part of this thing says now is that.
You know you are sitting with a lot of cash on the balance sheet more than you need them with minimum with great proactive position with with lenders and now the finances with the sale lease backs or whatever.
So you know this is a dynamic target I mean, they I think that it is dynamic and people looking at balance sheets and the static way.
Normally don't sort of appreciate that and I think the you know they're all leave is that we can pull some couple weve outlined on this cool.
No.
The sale leasebacks, perhaps.
We'll take station and other things.
And that's it.
Yeah definitely definitely tough market I appreciate you doing what you can thanks for taking my questions.
Thank you at this time I like to turn the call back over to do Baker for closing remarks, Sir.
Thank you operator, we have no closing remarks, so we'd like to thank everyone on the cool and I look forward to speaking to you Olson.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].