Q3 2020 Eagle Bulk Shipping Inc Earnings Call
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I would now like to turn the call over to Gary Vogel, Chief Executive Officer, and Frank because Bansal, Chief Financial Officer of Eagle bulk shipping Mr. Vogel you may begin.
Thank you and good morning.
I'd like to welcome everyone to Eagle bulk <unk> third quarter 2020 earnings call.
To supplement our remarks today I would encourage participants to access a slide presentation that is available on our website at Eagle ships Dot com.
Please note that part of our discussion today will include forward looking statements. These statements are not guarantees of future performance and are inherently 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 a more detailed discussion of the risks and uncertainties that may have a direct bearing on our operating results our performance and our financial condition.
Our discussion today also includes certain non-GAAP financial measures, including EBITDA adjusted EBITDA and P.C.. Please refer to the appendix in the presentation and our earnings release filed with the Securities Exchange Commission for more information concerning non-GAAP financial measures and a reconciliation to the most comparable GAAP.
Financial measures please.
Please turn to slide five.
As we have discussed before this year seafarers endured a great deal due to COVID-19.
Government imposed travel restrictions, which were put in place in order to curtail the spread of the virus created substantial challenges with respect to being able to affect crude changes and repatriation acquiring many seafarers to work well past their contractual employment periods.
Well many hurdles still exist thankfully travel restrictions have used in some countries, allowing for crude changes to take place. However, it's estimated that more than 300000 seafarers are still waiting to go home and as I've spoken to before this is simply not acceptable.
At Eagle It has been a strategic priority to reverse seafarers, which we're overdue and in this regard I'm pleased to report that we have now been able to change over the vast majority of our crew where today only 26 seafarers out of about 1000 are beyond their contractual work in period of course remain focused on getting this number.
Down to zero.
In order to achieve this result, we had to divert some of our ships and or incur additional off hire which came at a cost during the past quarter, we incurred approximately 40 incremental off hire days related to such crude changes equating to almost $400000 in lost revenue and in addition crude changes have been costing about 50 per.
Send more than normal due to such things as extended hoteling covert testing and more expensive travel cost this impact their opex by about $187 per day during the quarter given both the cost mention any elevated number of crude changes affected.
These costs notwithstanding we felt it was our obligation to Hugo seafarers and simply the right thing to do please turn to slide six.
Our markets continued on a recovery path during the third quarter with a B.S.I. ending September at 10943, an averaging 9931 per day for the full period, representing an increase of 81% as compared to the prior quarter.
We believe the recovery trend is reflective of a normalization in trade demand as well as the result of general easing import and trade restrictions. The market's been further supported by general stimulus measures in China as well as a robust grain trade, which we'll discuss later on in the call.
Eagle generated a net T C for the third quarter of $9620 per day 400 hours per day from the level communicated during our earnings call in August and up 20% quarter on quarter, representing a small beat against the market.
As we have discussed in previous calls it's challenging to catch on be it a rapidly rising market due to the fact that a number of days are fixed that advance where voyages average about 45 days in duration.
In addition, as we spoken about previously given the volatility and weakness in the markets earlier on in the year and lack of visibility due to COVID-19, we increased our hedge position for the second half a 2020 in order to provide us with appropriate downside protection.
Well this negatively affected our performance for the quarter. We believe it was a prudent thing to do and it was more than offset by the positive contribution from our platform methodology as well as operating scrubbers on the majority of our fleet.
As we have always advocated performance is best measured over multiple quarters. In this regard inclusive of Q3, our west 12 month average outperformance stands at $2101 per ship per day, equating to approximately $37 million in incremental cash flow on an annualized basis based on our call.
Current fleet size.
Additionally, while the outbreak of COVID-19, and the OPEC price water negatively impacted fuel spreads by our calculations, we have generated more than $23 million on a scrubber investment in just the first nine months.
Looking ahead as of today, we have fixed about 73% of our available days for the fourth quarter had a net T C of $11275 per day, which as of today represents a significant outperformance once again please.
Please turn to slide seven.
The topline growth we experienced in the third quarter contributed to an improved operating performance for the period as represented by EBITDA, which totaled $11.5 million. Please turn to slide eight.
As part of our ongoing fleet renewal program, we have reached agreements to sell three of our vintage supermaxes the Osprey Shrike and school all built between 2002 and 2003 gross proceeds totaled $15.4 million with all three sales expected to close during the fourth quarter. It is important.
Note that each of these sales were affected just months ahead of their statutory dry docks and installation of ballast water treatment systems saving a total of about $4.2 million in related Drydocking capex costs.
Inclusive of the above over the past four years, we have renewed 43% of our fleet, having acquired 20, Ultramaxes and sold 18 Supramax vessels.
He's SMP transactions have vastly improves our fleet makeup the average size of our ships has increased the average age of our fleet has remained fairly static over the period and as illustrated in the graph on the lower right hand corner of the slide our fleet emissions profile has significantly improved as measured by fuel consumption per deadweight ton we.
We plan to continue to execute on our fleet renewal and growth program on an opportunistic basis.
With that I'd like to turn the call over to Frank who will review our financial performance.
Thank you Gary.
Please turn to slide 10 for a summary of our third quarter 2020 financial results.
The improvement in the underlying spot market drove top line growth in Q3.
With revenue net of both voyage in charter hire expenses totaling 43.5 million.
An increase of 50% from the prior quarter.
In Q3, our TC came in at $9620, which is $191 above the adjusted net be a site.
We incurred a net loss of 11.2 million for the third quarter equating to a loss per share of one dollar and nine cents, both basic and diluted.
Please be reminded that we have completed a one for seven reverse stock split effective September 15th 2020.
The earnings per share number is reflective of the reverse stock split.
As a reminder, our hedge positions excluding the interest rate swaps do not receive hedge accounting treatment and as such the mark to market changes flow through the income statement as other expenses.
As would be expected adjusted EBITDA improved in Q3 coming in a positive 11.5 million.
It is worth noting that our profitability in the quarter was reduced by 3 million as a result of changes in our derivative hedge book.
Let's now turn to slide 11 for an overview of our balance sheet and liquidity.
Total cash inclusive of 1.9 million of restricted cash was 85.3 million at September Thirtyth 2020 reps.
Representing a decrease of 13.3 million as compared to the end of the second quarter.
The decrease in cash was primarily a result of the repayment of $20 million of the revolver and principal repayments of 7.8 million on the new Ultra co debt facility along.
Along with Capex spending of 2.9 million in part offset by proceeds of 4.6 million from the sale of the vessel Goldeneye and 12.8 million of operating cash generated.
Total liquidity increased to 105.3 million at the end of Q3.
Liquidity is comprised of total cash of 85.3 million.
In 20 million of Undrawn availability on the ultra co revolving credit facility.
Total gross debt excluding debt issuance costs at the end of Q3 was 522.4 million I.
I would note that our ultra co term loan three month LIBOR floating rate exposure is fully hedged by interest rate swaps at a blended average of 58 basis points.
Please turn to slide 12 for an overview of our cash flow from operations for the third quarter of 2020.
At the top of the slide you can see that net cash provided by operating activities was 12.8 million in Q3, representing a material improvement over the prior two quarters.
The chart demonstrates the timing driven variability that working capital introduces to cash from operations as depicted by the differences between the dark blue bars, which are reported cash from ops numbers and the light blue bars, which strip out changes in operating assets and liabilities primarily working capital.
I believe it is more meaningful to evaluate cash from ops from a year to date perspective, which smoothes out some of the noise.
Cash flows used in operating activities were 12.3 million for the year to date you.
You will note from the graph that working capital changes have evened out over the nine month period.
Please now turn to slide 13.
Our Q3 and year to date cash walk.
The cash at the top of the slide lays out the changes in the company's cash balance during Q3.
Revenue and operating expenditures are simple look at the operations.
The net of the two large bars on the left is positive 14 million, which is close to our adjusted EBITDA number.
To the right you will find a bar covering the $4 million of dry docking costs in capex of 2.9 million.
The $20 million bar represents the repayment of funds drawn from our ultra co revolving credit facility and finally, the bar totaling 12 million represents the debt principal and interest paid in the quarter.
The chart on the bottom half of the slide displays the changes in the company's cash for the first nine months of 2020.
Let's now review slide 14 for a cash breakeven per ship per day.
Cash breakeven per ship per day came in at $10644 in the third quarter.
The quarter on quarter increases in Opex, drydocking costs, and DNA weren't part offset by a decrease in debt principal repayment.
Vessel expenses or Opex came in at $4784 per ship per day in Q3 $337 higher than the prior quarter.
The increase in Opex per day was the result of the incremental costs related to the increase in crew changes in the quarter that Gary noted.
Drydocking came in at $936 per ship per day in Q3 $620 higher than the prior quarter. The increase was the result of an increase in number of dry docks.
Cas Gionee came in at $1596 per ship per day in Q3 up $268 from Q2.
Increase was attributable to the office space employees, returning to the office in the quarter along with a decrease in owned days due to the sale of the goldeneye it.
It is worth noting that our G.N.A. per ship calculation is based on our own vessels, whereas we operate a larger fleet, including our chartered in tonnage.
In this regard if we were to include the chartered in days in our calculation gene a per ship per day would be $1428 for the quarter.
Cash interest expenses came in at $1611 per ship per day in Q3, which was flat quarter over quarter.
Cash debt principal payments came in at $1718 per ship per day in Q3 $765 lower than the prior quarter.
The decrease is attributable to amortization repayments on our Norwegian bond debt, which are paid semiannually in Q2 in Q4.
This concludes my comments I will now turn the call back to gallery.
Thank you Frank Please turn to slide 16.
Here, we depict the BS Cy year to date performance as well as the vs side for 2019 and prior years.
As we had indicated on our last earnings call. The market continues to be trending similarly to years past when stripping out the impact from Cove in 19, essentially the period between March and June.
Year to date to be ESI averaged $7717 with current spot trading above 10000, or roughly $6000 higher than the low reached in April.
Please turn to slide 17.
One stand out in an otherwise negative year demand wise has been the increase in grain volumes. The global seaborne soybean trade is expected to reach 161 million tons for calendar year 2020, an increase of 9% as compared to the year prior.
This is primarily due to a significant pickup in imports by China has the country's pig population continues to recover post the African swine fever epidemic.
Aside from an increase in global volumes U.S. exporters are specifically benefiting from this increase this is attributable to both the lack of availability of beans from Brazil as well as the phase one trade agreement reached between the U.S. in China back in January.
The dark Blue line depicts total us soybean exports for the current marketing year, which began on September 1st overlaid on the previous four years.
As you will note U.S. soybean exports are tracking ahead of both the 16 17, and 17 18 marketing years and far above the last two which were negatively impacted by both the Asian swine fever, and US China Trade War looking ahead, the outstanding US sales for export figure currently stands at around $33 million.
Tons, which indicates a continued robust trend.
As mentioned the global increase is based primarily on increase in Chinese purchases. This is of particular note as exports to China when compared to other destinations account for a higher number of ton miles or effective demand.
Finally, while squadron quantum we're seeing robust amounts of corn being sold to China with outstanding U.S. sales for export totaling roughly 9 million tons.
Please turn to slide 18.
Net supply growth increased in Q3, albeit at a slower pace than what we experienced in the prior quarter with west deliveries hitting the water and more ships going for demolition.
A total of 87 Drybulk Newbuilding vessels were delivered during Q3 down about 46% quarter on quarter and offsetting this total of 43 vessels were scrapped during the same period more than doubling as compared to Q2.
The pickup in scrapping was very much expected as demolition yards began opening back up after closures in Q2, two to restrictions enacted on the back of Cove in 19.
In terms of forward supply growth. The overall Drybulk order book stands at just 7% historically low level and then looking at the Ultramax vessels as a percentage of the broader Handymax fleet. The order book is even lower at just around 5.5%.
For 2020, Drybulk net fleet growth is now expected to come in at 3.4%, which assumes scrapping roughly 16.4 million deadweight tons more than double what it was last year.
A total of 17 Drybulk ships were ordered during Q3, representing the lowest quarterly level in four years.
I remain encouraged by the current supply side dynamics of low ordering and elevated scrapping and believe they will remain favorable for the foreseeable future. Please.
Please turn to slide 19.
Global growth expectations remain in flux, but have been revised upwards since our last earnings call, reflecting a quicker recovery in Q2 and stronger expected growth for Q3.
The IMF is now projecting global GDP to contract by 4.4% in 2020, and then recover by 5.2% in 2021.
Drybulk demand growth projections have been revised upward as well with 2020 now expected to post decrease of just 2.3% as compared to the previous forecast of negative 4.1%.
The primary drivers for this improved forecast is increased projected trading grain and iron ore as well as in a number of the minor bulks.
Notwithstanding uncertainty and the potential for further government actions to slow the virus spread we remain cautiously optimistic continued normalization of trade demand and CRM market being a beneficiary from the stimulus measures, which are already being put in place around the globe.
With that I'd like to now turn the call over to the operator and answer any questions you may have operator.
Thank you.
With the prepared remarks completed we will now open the lines for questions. As a reminder to ask a question you'll need to press star one on your telephone to withdraw your question. Please.
Thank you Lisa involved you can call the junior Austin.
Our first question comes from Randy Giddings with Jefferies. You May proceed with your question.
Oh, the gentleman, who is it going.
Randy Good morning.
Morning morning, Yeah, We'll you know first congrats on all the crew changes I know that's certainly been an important issue for you all so nice to see the progress on that.
Now looking at the quarter to date rate guidance, you mentioned it was well above benchmarks one of your peers. So just trying to see if you can break this out by Ultramax versus Supramax and then also what kind of rates are you, earning maybe this week are they above or below that 11000 to 75 just.
To try to get a sense for the trajectory for the remaining 27%.
Yes, well first first of all I think it's it's fair to say that this market has been pretty dynamic and it.
It was it was lower than where it is today as we entered the quarter hit a high of 10 nine and today.
The index is around 10 and drifting down so we.
We don't go into where fixtures are specifically between Supramax Ultramax, we do a blend because we trade. Our ships you know together, we do have a slide in our appendix, which speaks to the fact that you know.
Ultramax vessels traded about you know depending on where their belt and when you know about 10% to 15% higher on a relative basis to supramax. So you can see where the spread roughly here, but we don't we don't break it out you know what I would say is if you look at the spot level and then our ability to outperform spot is that 10% you know we have our plan.
Forms and then we have scrubbers and even though the even though the spread right now is extremely weak.
Still that adds around six $700 per day across our fleet when you amortize the 41 scrubbers and spread it out over our broader fleet.
Got it Okay. That's fair.
Now speaking of your fleet. Good segue there it's nice to see that you are able to sell three of those older supers, especially in this environment, especially right right before their dry docking. So kudos for that I guess what are your plans for those four remaining supermaxes built prior to 2005 and then on the other end of the occur.
And in terms of fleet renewal any interest in a in a block purchase of modern secondhand ultramaxes.
Yeah, well first of all if I talk about the the sales and the <unk> and the remaining older vessels. So we I think made it quite clear that selling our older vessels the ones greater than 15 years.
One thing we will continue to do and we look to replace them.
We're we're open to both the individual ship purchases as well as larger on block purchases I mean, we've done we've done both in the 20 acquisitions a combination so and I think that that really will continue I mean, it comes down to the risk reward balance at the time and then obviously larger transactions.
Require require more capital so it's a balancing act, but we will continue.
Excuse me, we will continue to look to monetize and sell the older assets and renew them and renew the fleet and as well as to grow it.
Got it.
Good deal well that's it for me looking forward to a much better fourth quarter I'm sure for everyone. So thanks.
Thank you Randy.
Thank you. Our next question comes from Omar Nokta with Clarksons Plateau. You May proceed with your question.
Thank you Hi, Gary and Frank.
And just maybe dovetailing a little bit on the on the last unless.
And last question from Randy maybe just checking on the debt side I I.
Frankly at a pretty good job in the presentation kind of given a perspective on on that that's been repaid.
Especially I think the 20 million out of the 55 revolvers than we paid in the third quarter I know earlier. This year. There was a lot of uncertainty with the pandemic, taking shape and freight rates being low you took down the revolver to make sure. We had up in part to have a certain level of comfort I would think.
With that repayment that 20 million is that a signal one that you're feeling more comfortable with the financial situation in the outlook.
The next question is where do you see paying a bit more of that revolver here in the fourth quarter.
Hi, Omar it's Frank here, Yes, we are.
I wouldn't say we.
We mentioned as a single, but I you could take it as a signal that yes, we are more comfortable naturally by paying down $20 million in the quarter as Gary noted the the environment has improved materially.
In regards to Q4, we're looking for opportunities to pay down additional revolver as our cash flow and the market allows so.
It is important to us to to pay that down when the liquidity profile allows it yes.
Okay. Thanks, and then the three Super is that you've committed to sell.
You're getting 15 and change this.
This quarter, how much of that you'd expect to retain after the debt repayment.
Yes, actually those three vessels are within.
The ship code silo, which is.
Financed by the Norwegian bond so the proceeds from those sales actually all go into a restricted account, which can be used for purchasing.
The ships or to buy back bonds either one.
Okay got it okay. So ill.
And do you have a sense of what direction, we'll go into with those proceeds buying ships or buying bonds.
Yeah, No no decision per se, but I mean, we continue to look to renew and grow the fleet, but again, it's an evaluation based on opportunities in the end the S&P market versus the value, which we could buy bonds back. So no decision has been taken yet.
Okay got it alright that was it for me thanks, Gary Thanks for thanks.
Thank you and as a reminder to ask a question you will need to press Star then one on your telephone. Our next question comes from Liam Burke with B. Riley you May proceed with your question.
Thank you good morning, Gary Good morning, Frank.
Hi, Jim.
Gary you talked about in the earlier question about obviously the direction of rates are dynamic, but they were trending a little off the what you had fixed quarter to date is there anything in the macro environment is changing in terms of trade patterns or rami.
Grain is grain, but is there anything changing in the macro that would cause a draft or is it just daily Diana Dynamicism.
Yeah, well I think the biggest thing right now is to point to one would be the the headlines about China.
Restricting coal from Australia, we've seen that is although we don't carry coal.
Coal from Australia, primarily Cape and Kamsarmax.
Trade that clearly has an impact on the market and in fact with the with the grain trade being strong out of the Atlantic is actually based on a comparative basis, you see ships ballast thing in larger ships kamsarmax balancing into the Atlantic to carry that cargo on a relative basis. So thats definitely a trade I mean, it's fortunately we have the soybean trade to it.
Zorvec.
Which is which is really a differentiation from the last couple of years I mean this year. The the ban on coal is specifically to Australia I think it takes on these political overtones, but in the last couple of years, we've seen China restrict coal imports on the basis of quote is being that towards the end of the year and we didnt have the long haul soybean trade from the.
Atlantic that I talked about from the U.S. for the reasons already mentioned, so I think thats. The biggest thing at play right now on the positive.
The grain the soybean trade, which primarily comes out of the U.S. golf and then on the negative side, the lack of coal imports from from Australia into China.
Great.
Frank you were pretty clear that you look at your cash flow provided by operations is on a on a year to date basis, rather than quarter corner, but.
Third quarter, you saw a dramatic turnaround in your cash flow profile barring any kind of fall a significant fall off in rates would you expect that trajectory to continue into the fourth quarter.
No no that was really a catch up in Q3 two.
The weaker performance from a cash standpoint in Q1 and two so we would expect it to normalize in Q4, okay. Great. Thank you.
Thanks Liam.
Thank you and I'm not showing any further questions. At this time I would now like to turn the call back over to Gary Vogel for any further remarks.
Thank you operator, we have no further comments I'd like to thank everyone for joining us today and wish everyone. A good day. Thanks.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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