Q4 2020 Scorpio Bulkers Inc Earnings Call
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Ladies and gentlemen, todays conference is scheduled to begin shortly please continue to standby. Thank you for your patience.
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Hello, and welcome to the Scorpio Bulker, Inc. Fourth quarter 2020 conference call I would now like to turn the call over to Hugh Baker, Chief Financial Officer. Please go ahead Sir.
Thank you operator.
Thank you all for joining us today welcome to the scope you're a bulk is fourth quarter of 2020 earnings conference call.
On the call with me on Memoli, Lauro, Chairman and Chief Executive Officer, Robert Bugbee, President Cameron Mackey, Chief operating Officer James.
James Doyle senior financial Analyst and David Morant managing director.
This morning, we issued our fourth quarter of 2020 earnings press release, which is available on our website.
The information discussed on this call is based on information as of today Tuesday February the second 'twenty 'twenty, one and may contain forward looking statements that involve risk and uncertainty actual results may differ materially from those 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 that we issued today as well as Scorpio Bulker, SEC filings, which are available at www Scorpio brokers dot com and www Dot FCC dot Gov.
Participants are advised that the audio of this conference call is being broadcast live on the Internet and is also being recorded for playback purposes, an archive of the webcast will be made available on the Investor Relations page for our website for approximately 14 days.
To support today's call, we have posted a presentation on our website.
If you have any specific financial modeling questions. You can contact me later on we can discuss this offline.
Now I'd like to introduce you to them from where they Laura.
Thank you Hugh and.
Good morning, or afternoon to everybody. Thank you for being with us today.
I continue to be pleased with the commitment and the energy of the organization. Despite.
The challenging times the world is facing due to this pandemic we have made.
Made as a company significant progress in exiting dry bulk.
We have found the constructive sale and purchase market.
Which has allowed us to dispose of most of our fleet.
Since we started our sales process about 120 days ago.
Deliveries are accelerating in February and March as you can see from the slides we have provided today.
The balance sheet is becoming more and more simple to read.
With cash being the biggest asset on the balance sheet, and equities, which are allowing us some flexibility in timing our full dry cargo exposure exit.
Allow me a small clarification to our $101 million.
Cash balance as reported today.
This figure excludes $64 million of net proceeds from.
From the sale for vessels.
Where the debt has already been repaid or partially repaid by the sale proceeds have not been received.
We are nearing the end of the sales process as mentioned, we expect to be able to announce further sales shortly and the end of February remains a realistic target as the time in which all of the vessels will be either sold or committed per se.
In terms of the focus on wind energy as I have stated before the justification for our pivot has only become stronger as time passes.
Even accelerating during this period of significant economic uncertainty really.
As a group we have done an incredible amount of work on the wind side on all fronts.
On the organizational front, we've been identifying and sourcing key personnel.
On the technical front, we've been fine tuning the specification of the vessel exploring different geographical restrictions and specific requirements to optimize the design, which will lead to an improved performance.
And finally on the commercial front, we've been actively.
Dissipating and tender processes.
We have learned a lot we continue to learn a lot and combining these with our readily available expertise. We feel we can play a significant role in this industry going forward.
Tomorrow, we'll be.
We will be.
Holding an extraordinary general meeting where the shareholders of the company will vote for the name change and the ticker change.
We will resurface next week on there our new name <unk>, Inc, and our new ticker net E N E T I.
I'd like to thank the shareholders, who have voted so far which represent a strong majority of the outstanding shares and encourage Weber has not voted yet to do so if they find the time before tomorrow tomorrow.
G M.
With this I will turn the call to Robert Thank you.
Thank you very much for many all.
So by the time, we speak to you next dry bulk will be in the rear view mirror.
The name will change to a ticker symbol would've changed and hopefully on new operation will be underway.
I'm moving to wind has carefully considered as we move to the execution phase we are moving with purpose, but also with patients.
We have not lost any of our optionality by moving with patients.
Rather we've gotten tremendously from it we have gained knowledge, we've got on time to build operations and.
And gain and see experience and try things that we you know in and not life, but in theory on what can work on work comp work and we've most importantly, what's the market continue to develop in a more favorable fashion. We've seen significant government change is government support.
Significant projects moving forward and certainly that space is continuing to improve we've done this in a relatively low risk for my format. We've had the benefit through.
Through our relationships have not losing anything related to delaying the formalization of a new building contract, we haven't had to commit to it whilst we've been doing the sales if we go back to November.
Early before the election things run certain things became more on certain after the U S.
Election, and now however, too.
Two or three things have happened to our long term failure, where almost through the transition we can't be caught half way in a position having laid out capital for the new project without fully divesting from the second we've seen the government changes and we've seen the vaccinations of Ulta.
But really going to bring back.
Economic stability and growth to the industry.
For this call. However, we do like to you know.
Really we're not really in a position to answer much on our wind plants.
We'd like to keep that answering to the modeling anything you want to relate it to.
You know what with what we're seeing in the remaining dry cargo et cetera there.
And shortly.
We would like to be able to answer any of your wind installation questions.
After the company's renaming in the near future.
So thank you very much on with that we'd like to open up for questions.
Thank you ask a question you will need for Crestar, one on you touched on telephone.
Sorry your question, perhaps for counsel, please standby, while we compile the Q&A roster.
Our first question will come from on our Master with Clarksons. Please go ahead.
Sure Hey, guys. Good morning, good afternoon.
Robert I'll try to heed your your comment regarding keeping it.
More towards dry bulk at least.
Clearly the past few months has been very busy for you guys. In my current correctly, you've sold 37 ships since your announcement back in August of the transition.
Hard to make sure I heard you correctly and then you while you're on the call earlier did you say that you expect to conclude all agreements to sell the remaining fleets by the end of this month.
And so that that's the first question on the second one just a follow up as you know maybe could you give us a flavor or discuss how the reception has been in the sale and purchase market. Since you first started selling shifts in September and how it is today.
For Omar Thanks for the question.
On the first question.
You are correct. Your understanding is right we expect to have sold.
Or committed for sales.
The remaining.
12 vessels by the end of this month.
This is as I commented before a realistic expectations and we expect to.
To get that done Inc.
The next 26 27 days.
And as far as a general comment on the SMB market.
I think that.
In a way the fact that the dry cargo market has been constructive and we are in the first quarter.
He's on all usually seasonally weak, but I have kind of a market and instead.
On the industry were surprised on how strong this and constructive. This Q1 has been that helped us actually executing them.
Our sales in what we define as a constructive market right. So it was quite.
No we didn't.
Say easy, but it was possible to actually dispose of so many vessels in what has been a rising markets and you've seen the prices at which we've been selling ships reason.
The reason accordingly throughout.
On top of debt, we've announced a couple of transactions with existing players.
We have taken their stocking as consideration and we're actually pleased.
With that we're happy with the positions, we have which we think will allow us a little bit on flexibility on when exactly we want to push the exit Bolton.
And that debt.
Definitely.
If I've answered if I've answered the question number two omer.
Yes, now you did thank you.
Maybe just a follow up on that last point on the on the equity you've taken.
Is there a restriction period on.
The ownership of the shares and have you thought or is there a weighted maybe hedge the position is that something you desire or you feel comfortable just on India the equity outright.
Uh huh.
I think that.
We feel.
Right.
We consider that.
Star bulk is.
It's always trying to work out for who is the leader the number one but it certainly.
It certainly doesn't have.
Got it.
It's the top of top of the tree as far as the Drybulk public companies are concerned and.
In terms of size market cap.
You know quality earnings to any given market cost I mean, there's so many reasons why.
We were happy to take that stock. We also believe that and we said from the beginning you know right from the beginning with this isn't day.
We're not we weren't getting out to dry bulk because we felt that dry bulk was going to crash and fall apart we felt that.
It was going to improve and improve into and economic.
Like rally post COVID-19 or the expectation of a post COVID-19 that has fortunately been panning out all the time as you've seen we've been selling into a.
Steadily rising.
The sale on purchase curve that's improved our.
Not only the ability for us to sell the assets. It's also improved our ability to.
You know get a greater net asset value or cash.
Cash cash shell as it were in with.
To move forward and the transition to wind.
And you know the dynamics that are there.
What we're seeing in the market, there's no reason to think that.
That's not going to prove a you know a very good.
Very good investments so there's certainly no need for us to hold no desire for US to go ahead right now on.
You know hedge that investment.
On the notes for.
Private group itself is also.
As a shareholder and number one shareholder and other shareholders, we know when the group for.
For the physician.
<unk> clearly doesn't need the cash at the moment.
Plans that you know if we were to take down the new building.
Again, the company's balance sheet is more than strong enough for it doesn't have to sell the stock straight away.
So you know we can take our time and you know I.
I would say be a constructive seller over time, which means we feel that the stock is moving in an upward trend.
But clearly you know it is not a long very long term investment, but it certainly doesn't got to be dealt with within.
There's nothing that is.
We clearly have over a year on which to deal with it.
Thanks, Robert I appreciate that and maybe just one final one and then I'll pass it on.
Not sure if youre able to answer this or if you prefer to wait until it's under the <unk> umbrella next week, but any sense of timing on the on the <unk>.
Social contract signing.
I think that yeah.
We said, what we want to say on on the wind subject to the momentum will wait until it's under the.
Brother I think this is very much about.
Book ending at the moment this is about.
Let's say, we're about to turn the final page in the in the chapter of scope bulk is in.
We we want to spend the time on this call dealing with that.
And that's what the company is focused on right. This second.
And as soon as that name change comes which is going to come right on top of as Emmanuel says you know, let's say the conclusion of.
Selling out of the dry bulk sector benefit then as I said, we were looking forward to discussing this.
Wind installation market.
Yes.
Very good thanks, Robert that's pretty clear.
Good luck with the transition here. These next several weeks.
For the next several years.
Thanks for thank you.
Thank you. Our next question will come from Ben Nolan with Stifel. Please go ahead.
Yeah, Hi, this is Frank on T Entre Ben Thanks for taking our questions.
I kind of.
My other question.
Around the dividend.
I guess, what's the thought on continuing to pay a dividend.
In a world, where youre going to have no.
Earning assets for.
Two plus years.
Is that anticipated to stay around.
Or what's the thoughts around that.
I think that's a great question.
There aren't much thoughts about that at the moment the dividend itself is very.
Very minimal.
The.
The cash or ability to pay the dividend is super high.
So.
The that's why we haven't seen a rush at the moment to view that to think that that's something that will be taken up in the.
And let's say the new venture and we'll leave that to two.
Net day later.
Okay.
That makes sense and then if there are no I don't know on official basis. The board has not.
Discuss the total the stopping or cutting on the dividend.
Okay.
That makes a lot of sense.
And then and on this it seems like not much happened on the share repurchase program, but it did continue into 2021.
I guess again.
Well I say I'd hate us for.
Yes, sure no no I think that I think that.
Look the debt.
For the Sox deal is.
Yeah.
Very undervalued to its end.
To its net asset value and as I think all of you.
I'll kind of discuss it in detail, but I think that part of.
What the what.
What these results give on the explanations that we're giving what will make it for a clear for any of you to you may have different results at the end, but you're all going to come out with calculations that are going to show a number.
Much higher than where the stock is trading now in terms of cash.
Cash that you would expect for company to have once it's delivered and sold as vessels.
The company of course was aware of that and was buying as much stock as it could and very simply once.
The second at the end of the second week of the year came.
We are not allowed to we were let's say he went into a closed window.
The company has been in that closed window sense for that close window will open.
Again, you know.
Tomorrow Tomorrow morning.
And that's really what we'd like to say on that.
Okay.
That makes sense.
That's all I had thanks very much. Thank you. Thank you.
Thank you and our next question will come from Randy Gibbons with Jefferies. Please go ahead.
Howdy gentlemen, how's it going.
Thank you Randy on congratulations congratulation on for your family.
Thank thank you so much if you hear some crying it's not me.
Anyway.
On slide eight thanks, again that slide eight the SP, Okay vessel values, those only amount to the $102 million of debt as the footnote says there what is the total value of those vessels, China and get a sense for what kind of discounts taken for that block sale and what price youre kind of taking spo.
K shares Act.
I think it's probably better that way.
Sorry, if you just if I may appear just quickly and if you can do it as you know for.
For us, it's where they are at the moment.
Right.
As you know the deal itself and they are being struck at different times. So.
But if you carry on.
I think Robert it's actually captured it.
It's a very straightforward transaction in the sense that term Starbucks coffee.
It would be taking over the existing debt.
Lease obligations are on.
For ships, which amount to around $102 million.
In return we are obviously, receiving 3 million star bulk shares.
If you if you do the math from you can see.
We're receiving.
Or the value of the transaction basis, the current <unk>.
<unk> stock price.
And obviously, Mike you're on it.
Reputation on.
Can be monetized for or what the drivers were.
<unk>.
Okay. I guess, that's why I think moving back to say that you wouldn't do that structure unless we felt that.
For the time.
Through delivery and through sales of the stocks with the stock itself would continue Detroit to trade well on hot.
Sure.
And I've done the math and it's around $134 $234 million using current SP, Okay share price so yeah.
In our view the vessels for worth probably 145, alright, so that $10 million to $11 million.
<unk> is either due to some kind of discount when doing an en bloc sale.
For a expected appreciation of SBA, okay sure so on what their true.
I would ran DM on whaler here I would actually relocate your valuations of the vessels on actually.
Okay.
Don't know where you find the 145, but if you will invest in volume or anything else.
Or if you take our our just take the Scorpio sales price is.
We have created enough.
Benchmarking our sense right. So.
Look at debt and you just divide.
For the seven vessels by the <unk>.
<unk> for 155, you said today you see on it.
Your weighted.
Constructive.
Those are constructive valuations I really don't know where you get your 145, but we can discuss.
Offline, if you wish to go into more detail, but the 140 <unk>.
You.
But extremely high to me.
Also also also.
Partly that lies somewhere in between other things.
I was talking specifically on the ships themselves, but if youre looking at the share part I think youre looking at a deal construction that was you know.
The debt.
With space much more on the you know.
Somewhere between anywhere N a V E V.
And on the ships et cetera, I don't think you'd have to sell that there wouldn't be a bloke discount in the market for selling vessels I mean caught you know it would be the opposite because the market is moving strongly and as you've seen vessel values are going up on up.
I think that it wouldn't surprise me at all my expectation on let's say.
Is the Starbucks is trading under our NAV would be too. So if you are coming out with a total valuation and then you're just putting those vessels into the rest of your model. Then you are then going to come back and say well those vessels in my model will have a value higher than 130 for and that that would be the case because.
Because the whole of star bulk itself is trading on the N V and all calculations.
And Emmanuel is right related to individual modeling at the at the particular time that the contract was was actually struck.
Got it yeah, that's fair and we also view SPL K is undervalued here trading below NAV. So yeah.
Sir.
That's probably the beauty I think that's part of the beauty of the deal between the two companies I mean, it's a.
You know they didn't muck around I mean, they wanted to grow in and take the opportunity to great great assets, and we're able to use that currency. We felt that the assets were good and we want to the situation at the time of the deal where we were able to continue to participate.
The rising values at the time.
And whilst at the same time have certainty over these leased vessels in terms of disposals. So I think it's a great win win for both.
Perfect. Okay, and then just making sure I heard you right are there any day.
And any time you can have Hamish Norton working for you its just wonderful feeling too.
Can read them up every day and beat them up there.
That is true that is true.
And just taking share I heard you right on the timing right to the there won't be any WTO construction contract until you complete the unwind youre dry bulk vessels is that low.
Don't want to call. It whenever we want to not comment on that until we've got a as we said shortly we hope to be able to shortly we want to be able to discuss wind et cetera, but that will happen. Once the company is this has.
Become a net T with its new ticker symbol.
Got it I thought I thought I'd ask there.
And then I guess lastly, since we're focusing on dry bulk on this call.
What are your quarter to date rates for those remaining vessels that you are owning or are you operating nose to maximize cash flow are you operating those for best positioning for upcoming sales.
It's a combination of everything because what you're trying to do is maximize your.
Your cash upon exit.
Sure. It's a combination of getting net cash in the door now versus getting closer to selling it sure yeah.
No.
And you have to have a have to have a blend of that.
Good deal so that's it for me thanks.
We're far more interested in it.
In exactly that and how much cash will we have to invest in the new business.
Yep.
During that debt that that cash so that we.
We make time, a friend, which is which is what we've been able to do with the markets developing it's a long term business multiyear business that we've really gained at the moment I think from.
You know.
From not having to we've learned so much interest.
We wouldn't have otherwise lunch, if we'd rushed pell mell into it.
Sure.
Well that's it for me Thanks, again and good luck. Thank you Ann.
Thanks. Thank you. Thank you. Our next question will come from Liam Burke with B Riley. Please go ahead. Thank you.
You did set a timeline for when you expect it.
Sales of the final 12 vessels or would you anticipate them all to be cash or would you consider a stock offer like you did with Starbucks star bulk and Eagle.
Yeah.
I'm not sure we can comment on debt at this stage because negotiations are ongoing.
But you've seen you've seen what we've done.
So far the majority have been sold for cash we.
We were happy to take a.
Smaller portion of stock from Eagle and a larger portion of stock given the liquidity the size from star bulk.
We cannot we cannot comment further because negotiations are ongoing okay. So I mean, but you would consider.
Taking stock and then the final transactions on the final 12 vessel sales.
As I said, we cannot comment.
I cannot even say whether who actually is we are negotiating with as a public company on node. So we are.
Please please please take the no comment at this stage because as I said negotiations are ongoing but that's fine. Thank you very much.
Sure.
I would I would just refer back quickly what I can to question earlier with regard to us buying stock in.
No I mean, I think we bought nearly 10% of the company back in the last quarter during the window that we were allowed to buy.
Yeah.
That I think was a good.
Anyway next question.
And speakers I'm showing no further questions in the queue at this time, ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may now disconnect and have a wonderful day.
Thanks.
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