Q4 2021 Eagle Bulk Shipping Inc Earnings Call
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Ladies and gentlemen, please standby your conference call will begin momentarily once again, ladies and gentlemen, please stay on the line.
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[music].
Greetings and welcome to the Eagle bulk shipping fourth quarter 2021 results conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time.
As a reminder, this conference is being recorded if you require any operator assistance. Please press star Zero I would now like to turn the call over to Gary Vogel, Chief Executive Officer, and Frank discuss Angelo 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> fourth quarter 2021 earnings call.
To supplement our remarks today.
Participants to access a slide presentation that is available on our website had eagle ships dot com.
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 and Exchange Commission for a more detailed discussion of the risks and uncertainties that may.
They 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 adjusted net income EBITDA adjusted EBITDA and TCE. Please refer to the appendix in the presentation and our earnings release filed with the Securities and Exchange Commission for more information concerning non-GAAP financial measures and a reconciliation.
The Asian to the most comparable GAAP financial measures.
Please turn to slide six.
We experienced a strong market during the fourth quarter with the Baltic Supermax index, averaging around 30500, although rates were down by 11% from Q3 and represents the second best quarterly index performance since 2009.
On the back of this Eagle generated record results for the quarter with net income totaling $87 million or $6 79 per share.
In line with our capital allocation objectives I'm very pleased to report that Eagles Board of directors has declared a fourth quarter cash dividend of $2 <unk> per share equal to 30% of net income.
Since instituting our dividend program. This past October we have now declared cumulative dividends of $4 <unk> per share over just two quarters.
2021 was truly a phenomenal year for the company given our active management approach to trading the fleet and our significant operating leverage we generated a record $185 million of net income for 2021.
The nine vessels, which we acquired ahead of the market run up have appreciated by approximately 57% or $80 million. This along with our strong operating performance helped drive significant NAV per share growth in 2021.
The robust market along with our successful execution on both strategic and operational levels has put us in the strongest financial position in Eagle's history, We estimate our net leverage at just around 25% and total liquidity inclusive of cash and undrawn revolver of $186 million.
Furthermore, our comprehensive refinancing, which we executed in October allowed us to simplify our capital structure lower our interest cost and meaningfully extend duration with our bank debt now maturing in 2026.
Please turn to slide seven.
Yes.
Despite the BSI ending the year at 25188, we were able to achieve a net TCE of $29407 for Q4, representing a slight increase over the prior period, but an impressive 163% increase over the same period in 2020.
Not surprisingly the market was fairly weak in January and what is typically the weakest seasonal period. Nonetheless, we have to date fixed about 95% of our available days for the first quarter of 2022 had a net TCE of $27200 per day.
We're also seeing significant interest in tonnage for the balance of the year at elevated rates.
As an example, just this week, we fix the Stockholm Eagle one of our ultra Max's on a TCE at a rate of 36500 per day for a duration of minimum of five months.
These types of fixtures combined with a forward curve at around $26500 per day for the balance of the year bode well for Eagle in 2022.
Given the fixed cost nature of our business, we maintained significant operating leverage with essentially all incremental net revenue generated flowing to the bottom line.
Please turn to slide eight.
In terms of operating performance, we produced a record $91 $6 million of adjusted EBITDA in Q4, which accounts for unrealized mark to market gains on our hedges and certain noncash items related to our financing gross EBITDA came in at $108 million or over $20000 per vessel for.
For the full year 2021, we generated approximately $276 million and adjusted EBITDA.
Please turn to slide nine.
As alluded to earlier in the call ship values have increased significantly over the past year. Thanks to the rise in both spot and forward rates, which have been driven by improved supply demand fundamentals and forward expectations.
It's interesting to note that price strength has occurred on the back of a record number of transactions almost 1000 dry bulk vessels were bought and sold in 2021, representing about seven 5% of the total on the water fleet.
Mid aged supermax vessels rose by 95% in 2021 to reach $21 million the highest level since 2010.
Although prices came off somewhat in Q4, we're seeing values bid again and trading at or near recent peak levels.
We estimate Eagles currency has appreciated in value by approximately $470 million since the beginning of 2021 equating to $36 per share.
Going forward. We believe there is further upside to values, given where secondhand ships are priced relative to new buildings, and where spot and forward rates are trading.
Please turn to slide 10.
As indicated earlier on the call we were very active in terms of S&P during 2021.
And since we started executing on our fleet growth and renewal strategy back in 2016, we've now completed 49 transactions acquiring 29 modern ships and divesting of 20 of our oldest and least efficient ships. This has resulted in a fleet, which is 20% larger today than 12% more efficient.
Our fleet currently totaled 53 ships, averaging nine three years of age with 89% of those ships fitted with scrubbers as always we'll continue to evaluate vessel S&P, an M&A deal and look to execute on an opportunistic basis with that I would now like to turn the call over to Frank who will review our financial performance.
Thank you Gary please.
Please turn to slide 12 for a summary of our fourth quarter financial results.
The improvement in our TCE rate achieved and an increase in available days drove our top line growth in Q4 with revenue net of both voyage and charter hire expenses totaling $149 8 million.
And net income coming in at 87, 5 million, representing a 12% increase as compared to prior quarter.
Earnings per share for the fourth quarter was $6 79.
On a basic basis and $5 40 on a diluted basis.
The diluted share count includes approximately 3 million shares from our convertible bond.
Adjusted net income.
Which excludes noncash unrealized gains on derivatives of $24 1 million and a $6 million loss on debt extinguishment came in at $69 3 million for the fourth quarter or $5 38 per share on a basic basis.
As Gary mentioned earlier adjusted EBITDA came in at $91 6 million for the fourth quarter.
Yes.
Let's now turn to slide 13 for an overview of our balance sheet and liquidity.
Total cash came in at $86 2 million at the end of Q4.
Cash at 12, 31 was driven by our strong operating results.
All set by the repayment of $71 $5 million of debt.
So acquisitions and vessel improvements.
And our Q3 dividend payment of $26 million.
I will cover the movements in greater detail on the cash walk slide.
Total liquidity came in at $186 2 million for the year ending 2021.
Total liquidity is comprised of total cash of $86 2 million and 100 million a fully undrawn revolving credit facility availability on our global ultra coat that facility.
Total gross debt excluding debt issuance cost at the end of Q4 was $401 7 million a decrease of $71 1 million from the prior quarter.
$9 million of the decrease is due to the global refinancing which closed on October one.
Post the refinancing in Q4, where you paid $50 million drawn on our new global refinancing revolver.
And the first amortization payment of $12 $45 million on the refinancing.
At the time of the global refi in early October we entered into interest rate swaps to move the interest rate exposure for the $300 million term loan from floating to fixed.
As a result of these swaps our interest rate exposure is fully fixed.
Yes.
Please now turn to slide 14 for an overview of our cash flow from operations for the fourth quarter of 2021.
Net cash provided by operating activities was $88 3 million in Q4.
Highlights the timing driven variability that working capital introduces to cash from operations as depicted by the difference between the dark blue bars, which are the reported cash from ops number.
In the light blue bars, which strip out changes in operating assets and liabilities primarily working capital.
Although as the chart demonstrates the volatility caused by working capital largely evens out over time.
The difference between the two borrowers this quarter can be explained by a significant amount of cash collections just over quarter end in early January .
Please turn to slide 15 for our Q4 2021 cash walk.
Let's focus on the top chart, which covers the cash movements in Q4.
The revenue and operating expenditures bars are a simple look at the operations with the net of these two borrowers coming in at $92 million. The same as our adjusted EBITDA result.
Moving to the right the $19 million for vessel S&P bar represents the acquisition costs for the Valencia Eagle, which was delivered in October and vessel improvements related to ballast water treatment systems.
Next you will see the global refinancing activity, which helped in our deleveraging process the pay down of the Rcs and our first dividend.
The bottom chart covers cash movements for the full year 2021.
Let's now review slide 16 for our cash breakeven per ship per day.
The cost pressure, we experienced in Q4, we will begin to ease in Q1.
Some of the onetime Q4, opex costs, such as vessel acquisition and Crewing company termination costs will fall away in Q1.
We see COVID-19 related cost pressure, which we experienced in Q4 persisting as we continue to face challenges in areas such as crew repatriation.
In addition, we are experiencing similar COVID-19 related issues with shifts in dry dock, which is putting pressure on costs and related off hire.
G&A was impacted by one time legal costs in Q4.
You would also move lower in Q1.
Finally, our net debt service cost per ship per day will move lower as significant interest expense savings will more than offset the increase in amortization under the new global credit facility.
More specifically, we expect the following per ship per day in Q1.
Yes.
Opex to decline to about 5300.
Cash G&A is expected to come in around seven.
<unk> hundred.
It is worth noting that this figure is based on our own ships only if we include our chartered in fleet G&A per ship per day is expected circa 2500.
Cash interest expense will decline to $759 down by $615 from the full year 2021 result.
Cash debt amortization expense will increase to 2000 and $610 up by $380 from full year 2021.
In addition.
There will also be a material change to noncash interest expense, which will decline by approximately $1 2 million per quarter to 400000, as an accounting standard update no longer requires the company to bifurcate the equity component of the convertible bond.
In 2022 noncash interest expense will consist of the amortization of debt issuance costs on the convertible bond and the new global Ultra co debt facility.
This concludes my comments I will now turn the call back to Gary.
Thank you Frank Please turn to slide 18.
The BSI hit a 13 year high and mid late October reaching almost $40000.
This strength was attributed to the robust commodity demand experienced since the beginning of 2021 and also supported by the container spillover trade as well as elevated congestion due to supply chain bottlenecks and COVID-19 related port restrictions around the world right.
<unk> started to come off in early November as congestion eased tonnage of value increased and trade flows decreased particularly within the Pacific where the Chinese slowed down their purchases of coal. This was driven by both the spike in commodity prices, but also by China looking to curtail annual import volumes as we've seen in years past.
As mentioned earlier on the call. The BSI averaged approximately 30500 for Q4 down 11% as compared to the prior quarter.
Downward move was driven solely by weakness in the Pacific, which saw rates decreased by 17% for the quarter averaged 27217, the Atlantic market actually rose during the same period.
As we look ahead into Q1, the BSI continued to trade off through January reaching a low of just over $17000 on February 2nd.
As alluded to before January tends to be the weakest month of the year due to lower demand activity around lunar new year holidays, as well as elevated new building deliveries. This year. The market was also impacted by the Winter Olympics and a short term halt on Indonesian coal exports.
Indonesia is a major coal exporting nation, but due to shortages and local coal inventories.
The government enacted a ban on exports until producers met their domestic quotas.
Most of these have now been met and exports have for the most part normalized trade activity picked up significantly in February and the BSI has been reflecting this as rates have increased by almost $10000 since their recent bottom quarter to date. The BSI has averaged around 22000 and today stands around 27000 near.
Term, we expect increased volatility due to the tragic geopolitical events occurring in Ukraine.
Black Sea region as a major export market for grains, with Ukraine, and Russia exporting a combined 15% of global seaborne grain trade.
While it's too early to tell exactly what may happen, we will undoubtedly see some change in trade flows clearly a reduction or stoppage of grain out of the black sea or cargoes from Russia will negatively impact the markets in those areas, but overall, we could see an increase in ton miles as end users find alternative sources for cargo.
As an example earlier this week, we fixed two cargoes of coal from Indonesia to Europe .
Aside from our strong TCE rate of more than $32000 per day. It's noteworthy as this is the first time the companys ever move coal from Southeast Asia to the continent on what is a very long ton mile trade.
Please turn to slide 19.
Fuel prices strengthened in Q4 and continue their upward momentum as demand for oil products increased across the spectrum <unk> and <unk> are now averaging around 590 and $825 per ton respectively. The fuel price spread between <unk> and <unk> SFO has mirrored the increase in AUM.
For oil prices with fuel spreads currently at about $235 per tonne, a two year high but it's worth noting that the forward curves are indicating pricing around $165 for the balance of 2022.
With 89% of our fleet fitted with scrubbers, the price differential between <unk> and VR SFO as an important value driver for our business as the slide indicates based on year to date and the forward curves, we generate about $39 million of incremental value per annum.
Please turn to slide 20.
Net fleet supply growth decreased slightly in Q4, a total of 79 dry bulk new building vessels were delivered during the period down 11% year on year, partially offsetting this a total of just three vessels are scrapped during the same period compared to 38 in Q4 of 2020.
This low level of scrapping is not surprising given the strength in the underlying spot market and it continues to add to the group of older ships that will inevitably need to be recycled in the future.
In terms of forward supply the overall Drybulk order book stands at a historically low level of just six 7%.
It's been lower for the Super Max Ultra Max segment at 6.0.
For 2022 dry bulk net fleet growth is expected to be just two 1%, which would be 40% lower than 2021, given the rapid depleting order book and somewhat higher projected scrapping as compared to this past year.
A total of 72 Drybulk ships were ordered during Q4 about half the level of the prior quarter and below the average over the last five years of roughly 100 ships per quarter. It's also worth noting that two thirds of these vessels that were order are only scheduled for delivery in 2024.
Although we expect some level of ordering to continue we still believe it will be somewhat muted, giving new building price levels, both absolute and on a relative basis to second hand, prolonged delivery time, given the lack of yard slots and the ever creasing uncertainty around future carbon pricing and regulations regarding emissions. Please turn to slide 21.
Yes.
As we've spoken about before and you can note from this slide Drybulk demand is inextricably linked to global GDP for 2022. The IMF is estimating global GDP growth of four 4%, which was lowered by 50 basis points as compared with October reflecting inflationary pressure in supply chain issue.
As in the U S economy, as well as China is zero Covid policy in response to omicron variant and weakness in Chinas property development sector.
Please turn to slide 22.
Yeah.
Thanks to fiscal stimulus enacted in 2020 in 2021 as well as general commodity restocking due to impacts from Covid drybulk demand benefited from elevated growth last year minor bulks, which are comprised of many infrastructure related commodities, such as steel cement scrap and nickel ore outperformed the major bulks by almost two times for 2010.
Two drybulk demand is forecast to be led by minor bulks again with growth of two 2% for minor bulks as compared with one 9% for dry bulk overall, it's important to look at this in concert with the expected low fleet growth numbers I mentioned, a few moments ago.
I also think it's important to highlight the relative strength in actual to expected demand growth for minor bulks versus the majors you can see this in year to date rate performance and also from what the forward curves are indicating year to date. The BSI has averaged 22000 per day, while the Cape Index has averaged 13200 looking ahead for.
Occurs for the balance of the year, our trading around 26000 529000, respectively. We have always believed and continue to believe that the mid sized Drybulk segment offers the best risk adjusted returns notwithstanding near term volatility we are optimistic about the prospects for continued global growth, which is being supported by ongoing stimulus.
The positive demand picture combined with a record low order book supports our constructive view on market developments looking ahead in closing we're energized about eagle's strong position following our multiyear fleet renewal and growth initiatives as well as our recent comprehensive financing and on the back of these we're looking forward to continue to execute for the benefit of.
Our shareholders with that I would now like to turn the call over to the operator and answer any questions that you may have operator.
With the prepared remarks.
For questions, Ladies and gentlemen, if you have a question or a comment at this time. Please press. The Star then the one key on your Touchtone telephone.
It has been answered or you wish to move yourself from the queue. Please press the pound key.
Our first question comes from Randy Gibbons with Jefferies.
Howdy, Gary Frank and coastal How's it going.
Good morning, Andy Good morning, So yes, congrats again, obviously another record quarter here very impressive quarter state rate guidance for the first quarter I'm sure much of that was kind of fixed during the fourth quarter that said any update on your SFA hedging plans and what percentage of <unk> Q2, two days.
Are already booked and at what rate.
Yes.
Thanks for that I'll I'll start I'll start with kind of where we are in Q1 as we entered the year.
You'll see it in our K when we file that we had.
About 3000 days.
<unk> sells at an average rate of 23400 <unk>.
So of course based on the BSI. So I think it is important to note that thats based on a super Max vessel non scrubber fitted and so from that you can of course.
Extrapolate to where you think earnings would be on those hedges that's effectively eight ships.
In terms of the second quarter, we only provide guidance in the quarter that we're in.
Having said that I would point to the fact that the.
The forward markets are are up.
And quite strong in fact, just this morning.
April traded in excess of 30000, and so the whole the whole strip for the balance of the year for the Super Max The BSI has really pushed up in the index.
As of this morning actually is over 28 so.
We're a we feel like we're in a good position given our balance here with some FFA coverage going into the year, but in terms of specificity, we're not going to provide guidance as to TCE at this point for Q2.
Okay, that's fair and I guess outside of SSA, what about time charters have you locked in some for the full year.
Yes.
Answer is yes, we have done some we've decided to keep not not to disclose all of our exact balance because for us. It's dynamic we take ships in as well. So we may decide to go out and fix a number of ships and then and then the following week, we may take three or four ships on three to five month charter. So it may it may give them.
<unk> impression if we gave a static number but just anecdotally I've mentioned, the Stockholm Eagle fixture, which I think speaks to the strength in the market. She is an ultra Max of ours and we fixed it.
Just this week at 36500 as a gross rate for minimum five months so.
And those numbers I would say if anything today that market is is even slightly higher than it was three days ago. When we did that fixture. So it's really dynamic for eagle and so it's not like we're trying to be.
Obtuse here and not not provided but it's dynamic in the sense that our position.
Shortens and lengthens really on a daily basis.
Yes, no that's fair alright, thats, a pretty solid rate on Stockholm.
Last question for me balance sheet clearly in great shape. Your fleets now fully delivered going forward, obviously, knowing youre paying out at least 30% of net income via dividends share repurchases I guess, what do you do with your substantial excess free cash above and beyond that debt repayment fleet renewal or something else.
Yes, so I mean, if we start with the fact that we've just done now this is the second quarter of our dividend payment as you point out, it's a minimum 30% and thats what the board.
Approved for this quarter.
Having said that in terms of debt repayment, we have almost $50 million of amortization in our in our new bank facilities are pretty robust.
We do believe that putting cash on the balance sheet makes sense, particularly potentially we have the option ultimately too.
Two.
On the convert to redeem that in cash or shares and we think there's a real benefit for a substantial portion if not all of it to do that in cash at some point.
So right now we feel comfortable with where we are whether whether or not the dividend increases as again as you pointed out it's a minimum of 30%, but we feel comfortable.
Garnering that cash and putting it on the balance sheet right. Now in addition to the substantial amount that we return to shareholders with the dividend.
A $2 five.
Got it alright.
Sounds good that's it from me Thanks again, alright. Thank you.
Our next question comes from Magnus <unk> with HC Wainwright.
Sure.
Hey, good morning, Congrats great quarter.
Just a couple of questions.
On the time charter or short term time charter you did five months seem like whats.
Is that right, where it's at origination and destination of that and how long is that.
Voyage, I mean, I'm, just trying to figure out why somebody would lock in at <unk> 36 for a very short five months.
If you can kind of maybe give a little flavor on that.
Sure. So first of all that's a scrubber fitted ultra Max and right now given the fuel spreads.
The benefit of having a scrubber is in excess of $3000 a day and it's actually even more.
In Asia, we're Singapore, the price spread is even greater than the than the number I indicated, which we use we use an.
On average over a number of the major ports in the World and then it's in it's in the far east where rates are really pushing up right now we see the strength.
Really coming from the Pacific and part of the reason of course is is the disruption and dislocation from.
What's going on in Ukraine, and so ships are balancing away. There. So we see for instance, a lot of demand I mentioned, the coal cargos moving from Indonesia to the continent, it's putting pressure on that market on top of normal movements. So.
The number the headline number is quite strong the actual period that we fixed is a minimum of five months to about seven months, meaning that the ship could come back six 5% to seven five months and we don't particularly like to reroute our ships on on because of that optional period in terms.
When the ship can come back in this case six 5% to seven five months, but when the rate is such that we feel it's a significant premium to the market and walk in cash flows and it's a better a better tool. If you will than the FFA and we'd go ahead and do that and we felt that on that Stockholm, that's exactly what this represented.
Alright, Thank you Ryan and besides the coal trade going.
Going to Europe .
China is a big importer of grains do you see them stepping up here I mean is it.
Early or do you see any movement there from them trying to secure.
Cargoes and the forward market.
Yes.
There was a there was an article yesterday about China looking to source and secure secure commodities across the board whats interesting is we've seen China buying.
Different amount of U S soybeans, even though we're getting into now the Brazilian season. It says there is a price benefit there.
So surprisingly robust soybean purchases out of the U S. But in general we've seen significant demand.
Across the board and I think Thats, why youre seeing rate developments pushup.
For the Super Max and as I mentioned now in excess of 28 and the forward curve for the second quarter even higher.
Alright, and just last question I know you'd like to use the forward market to hedge some of your exposure.
With the fuel spread I guess, it's pretty pretty wide now.
Compared to the forward markets, what what's your position there as far as.
Hedging anything or are you going to is going to be.
Have a naked position there.
Yes. It is.
We're talking about are quite actively right now the forward market is around $1 65, and obviously, that's a significant number for us but it is a it's pretty pretty heavily backward dated to spot. So I think we haven't made a decision, but I think you could see us start to layer in some some spread hedges, we did quite a bit.
In 2019 running up to 2020, which was really beneficial for us when the market unexpectedly backed off and we're.
We're big believers in hedging.
Locking in noncore risk, which that absolutely.
We see it as a as.
As a potential so nothing yet, but I think you likely will see us start to do so in the near future.
Okay, Alright, and just one last question.
If you look at the Newbuild market, what's the current lead time.
If you would put in an order for a supra Max one vessels versus 10.
Okay.
Yes, approximately yes, it really it really depends where you are I mean, I think a good good.
A good indicator would be where the 70 I think it was 72 ships were ordered last quarter. Two thirds of them are in 2024 and one third in 'twenty. Three I think 23 is now all but gone.
Possible, you'll find one or two births or maybe maybe a handful probably at a second tier Chinese yards, but in general Youre looking at 2024.
Okay, great. Thank you.
Alright, Thank you Magnus.
If you have a question or a comment at this time. Please press. The Star then the one key on your Touchtone telephone.
Our next question comes from Omar Saad with.
Securities.
Thank you.
Hi, Gary I, just wanted to start maybe with one of the topics with Magnus.
The scrubbers, obviously, you've seen a big jump in fuel differential and a huge benefit today with having the scrubbers on board just wanted to ask did you see any risk of not or has been able to capture.
These price differences with all the volatility we've been seeing in the commodities with crude and bunker fuel in general is there any shortages that you're potentially seeing.
Or envision HMO and something that would make you not able to capture.
<unk> spread.
Yes.
The short answer is no we haven't seen any shortage whatsoever.
<unk> and in fact, if you did you would see that price push up right.
So we have been able to capture virtually 100% when we do business on voyage basis fuel price fuel cost as an internal and when we price freight.
We don't price freight on basis of of.
Of <unk>, we price it on.
Conventional fuel and the reason, we do that is 93% of our competitors.
The mid size fleet don't have scrubbers, and so we never look at the when you look at it but we never price freight using.
Heavy fuel, we only do it on the compliant fuel and then we get the benefit when we go to the pump effectively we pay less and when we when we charter a vessel out we absolutely look for 100% of the value of that scrubber. When we when we look at what we need for on a time charter out and you know our default is not to do that we look at exactly what we.
Believe based on the spread and the geographic area of what that is and if we don't get full value then we simply won't do it and I think.
Going back to the Stockholm Eagle I think is a good example of getting that premium over and above that.
DSI rate plus that she has an ultra Max plus actually scrubber fitted given where we are she is and what the current spread is.
Theres, a mouthful sorry about that.
No Gary.
Helpful actually it does feel like when we look at the Stockholm that it does indeed get the.
As you mentioned, the 100% scrubber benefit or at least very close to it.
Yes.
Frank You mentioned, just the need of working capital cash walk.
You did talk about just the working capital aspects of the business and just wanted to ask.
Any any concerns or any any impacts you're seeing higher bunker fuel prices, having on short term liquidity.
Hey, Omar.
Strike here no none at all.
Working capital is feeling great.
We had a bit of.
Overlap and collections we are.
A good amount of.
Collections coming in early January that sort of.
Just started it a bit there, but no there's no issues at all feels great our dsos as Lowe's ever.
So we're quite pleased with our working capital management.
Okay very good.
One final one Gary just back to I think it was magnified last question.
The regarding the scrubber benefit again, but just in general I guess, we've talked about the Stockholm several times in the call but in terms of.
In your opening comments you talked about you know.
Managing the business you guys are in good good financial condition, you want to add perhaps more cash to the balance sheet just instituted the dividend.
Enjoying the benefits of basically buying a bunch of those vessels last year at a low capital base and that we reap the benefits of that.
In terms of keeping an eye on acquisitions, given the premiums that we're seeing now you've been able to achieve such a big number in your first quarter guidance relative to the index.
Do you think about acquisitions going forward you know last year I think at this time you bought a handful of older Supermaxilla.
Taking advantage.
Opportunistically very discounted prices, but when we look ahead for now.
Does the premium that you achieved in the Stockholm, and the scrubber benefit Youre getting now does that kind of maybe compel you or push you in the direction of if there are going to be acquisitions going forward.
And at least in the visible feature is it going to be on the higher end of the seeker.
Yes, so I mean.
The simple answer is that if you look at the 29 acquisitions. We did 26 of them were ultra axes from from effectively resell up to five years old and Thats, I think where eagle will focus the three crown 50, eight's were a unique opportunity that presented itself and we acted upon it but that's not really where eagle sees its future.
Oh, absolutely I think we will focus on on an ultra matches and in terms of a.
Scrubbers I think we we have the largest fleet of midsize ships scrubber fitted ships. So while we're agnostic in the sense that scrubbers themselves have a have a value and we won't overpay for that.
Scrubber, if scrubber fitted tonnage comes comes into the market, there's not a lot in our segment that is definitely something we feel we have a competency to extract the full value for and we'll look to that but but not at not exclusively.
Understood.
Okay. Thanks, Gary Thanks, Brian Thank you.
Our next question comes from Liam Burke with B Riley.
Yes. Thank you good morning, Gary Frank Kosta.
Good morning Liam.
Frank you've got a high class problem with the free cash flow even.
Excess of the dividend payout target of 30% of net income.
Is there a target leverage ratio you have or are you just kind of manage the cash on a year to year basis.
The leverage ratio moves around with the business cycles right now.
Net debt to EBITDA, we're around one turn which is already a good place to be but there's no hard targets and clearly getting our balance sheet in great shape.
While things are good is priority one.
So.
When the when the market turns we'd like to be in a position if it if it does too.
Make acquisitions or.
Play offense as we say here. So we feel we're in great shape, we don't have a hard target.
And we're delivering as cash comes in.
Fair enough and then on the Opex youre going to have a nice sequential step down there is obviously some one timers in there.
How do you see managing Opex as you move through the year is there any additional low hanging fruit you can manage down.
Yes, I'll take that one.
I'm a firm believer opex as an output right. It shouldnt be a target because we need to run our ships safely efficiently comply alia and reliably and so you know the fourth quarter. As you said has had some.
Some cost in there.
<unk>.
During 2021.
We've worked on increasing what we call critical spares inventories to ensure that try and make sure that the ships are are able to stay moving it's really critical in a high market right because of the cost.
The one negative of a high market as the cost of not moving and waiting for something is that much greater right. So those costs are business case decisions. There's also incremental cost in opex from Covid. It continues to be extremely challenging.
With.
Regulations with quarantines, Unfortunately, with some infection positive cases things like that and there is cost involved with quarantine and crews in terms of repatriations and flights and.
So.
It is we do expect a significant step down, but I think opex will continue to likely be a bit volatile.
Given the dynamics in the world right now.
Great.
Thank you Gary Thank you Frank.
Thank you.
Yes.
And I'm not showing any further questions at this time I'd like to turn the call back to Gary Vogel for any closing remarks.
Thanks, very much we have nothing further so like to thank everyone for joining us today and wish everyone. A good day.
Okay.
And in Europe .
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Okay.
Yes.
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