Q3 2022 Eagle Bulk Shipping Inc Earnings Call

November 4, 2022

Yeah.

The conference will begin shortly to raise your hand during Q&A you can dial star one one.

[music].

The conference will begin shortly.

Raise your hand during Q&A, you can dial star one one.

[music].

Yeah.

Good day and thank you for standing by welcome to the Eagle Bulks third quarter 2022 earnings Conference call.

At this time all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.

Ask a question during the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to Gary Vogel. Please go ahead.

Thank you and good morning, I would like to welcome everyone to Eagle Bulks third quarter 2022 earnings call.

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.

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 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 wreck.

Filiation to the most comparable GAAP financial measures. Please now turn to slide six.

Notwithstanding macro headwinds and heightened uncertainty surrounding geopolitical elements Eagle was able to post another strong quarterly result achieved in Q3 net income of $77 2 million or $5 94 per share basic adjusting for noncash mark to market.

<unk> on derivative hedges and other noncash items net income came in at $74 $3 million or $5 72 per share.

Based on this result, and consistent with our stated capital allocation strategy Eagles Board of directors declared a cash dividend of $1 80 per share equating to 30% of earnings.

This is our fifth consecutive quarterly dividend, bringing total shareholder distributions to $10 five per share since we adopted our capital allocation strategy, just 13 months ago.

Additionally, we opportunistically repurchased approximately 9% or 10 million face amount of our convertible bond debt in the open market.

This transaction has not only resulted in a decrease in our debt outstanding but also in a reduction of our diluted share count by 296990 shares I think it's worth noting that we repurchase the bonds when our shares were trading around $41. So we view the transaction is quite accretive in terms of <unk>.

As part of our ongoing fleet growth and renewal strategy, we acquired a high specification in 2015 belt scrubber fitted ultra Max for $27 $5 million.

The vessel was constructed at <unk> in Japan, and will be renamed the motor vessel Tokyo Eagle delivery is expected within November .

Separately in August we closed on the sale of the motor vessel Cardinal at 2004 built Super Max ship was sold for $15 $8 million pro forma for these transactions. Our fleet totaled 53 ships, averaging about nine eight years of age with 91% being fitted with scrubbers. Please turn.

Slide seven.

Our third quarter financial results were driven by exceptional top line performance, especially when compared to the underlying market.

We achieved a net TCE of $28099, which represents a decrease of 7% quarter on quarter, but a significant increase in outperformance against our benchmark index to almost $9000 or <unk>, 46% per ship per day.

Our strong market performance can be attributed to a number of factors, including our commercial platform and its dynamic approach to trading ships are FFA and commercial position heading into the quarter and our ability to capture significant value from fuel spreads as a result of our fleet scrubber position.

As we look forward to the fourth quarter spot rates are weaker than the Q3 average but as of today, we have fixed approximately 70% of our owned available days for the fourth quarter at a net TCE of $25040 pointing towards another quarter of significant outperformance against the BSI.

Please turn to slide eight.

Our topline performance helped drive another strong operating result, with adjusted EBITDA coming in at $85 $1 million after adjusting for the unrealized P&L impact of our hedges and certain other noncash items.

Our trailing 12 month EBITDA run rate remains essentially flat as compared to the last quarter coming in at $364 million.

Very modest EV EBITDA multiple of just two three times.

I would now like to turn the call over to Frank who will review our financial performance in more detail.

Thank you Gary Please turn to slide 10 for a summary of our third quarter financial results.

TCE revenues totaled $128 9 million in Q3 versus $138 2 million in Q2.

The decrease was mainly due to lower market rates offset in part by a slight increase in available days.

Net income for Q3 was $77 2 million.

Earnings per share for the third quarter was $5 94.

On a basic basis.

On a dilutive basis, which primarily includes the shares related to the convertible bond EPS came in at $4 77.

For the quarter.

Adjusted net income, which excludes noncash unrealized gains on derivatives and a loss on debt extinguishment came in at $74 3 million for the third quarter or $5 72.

Per share on a basic basis.

On a dilutive basis, we achieved adjusted EPS.

$4 58 for the quarter.

Adjusted EBITDA for the third quarter was $85 1 million.

As Gary noted during the quarter, we repurchased $10 million in face value of our convertible bonds, which reduced our diluted share count by approximately 300000 shares.

Let's now turn to slide 11 for an overview of our balance sheet and liquidity.

Total cash at the end of Q3 was $197 6 million, an increase of $56 1 million.

As compared to Q2 'twenty two.

The significant growth in the company's cash balance was primarily driven by strong operating results as well as the receipt of $14 9 million in net proceeds from the sale of one vessel.

These inflows were partially offset by the ultra coat debt facilities quarterly amortization payment of $12 4 million.

A $4 1 million dollar deposit paid for the purchase of the Tokyo Eagle <unk>.

$14 2 million dollar payment to purchase a portion of our convertible bonds and $28 8 million.

Of dividend payments.

Total liquidity came in at $297 6 million at the end of Q3.

Total liquidity is comprised of total cash of $197 6 million and $100 million of a fully undrawn revolving credit facility.

It is important to note that we owned three unencumbered vessels, which provide us with additional flexibility to increase our liquidity.

We intend to use cash on hand to pay for the Tokyo Eagle, which will provide us with a fourth unencumbered vessel once the Tokyo was delivered to us in the fourth quarter.

Total debt at the end of Q3 was $354 3 million an improvement of $22 4 million from Q2, driven by the quarterly repayment of the ultra coat debt facility and the repurchase of the convertible bonds.

We entered into interest rate swaps around the time of our global refinancing in early October of 2021 to fix the interest rate exposure on the term loan.

As a result of these swaps, which averaged 87 basis points. The company's interest rate exposure is fully fixed insulating us from the adverse impact of rising interest rates.

Please now turn to slide 12 for an overview of our cash flows from operations for the third quarter of 2022.

Net cash provided by operating activities was $102 3 million, an increase of $4 3 million from Q2.

Strong receivables collection drove the quarter on quarter increase.

Our working capital management as outstanding as reflected by the company's strong overall cash conversion cycle.

The chart highlights the timing driven variability that working capital introduces to cash from operations as depicted by the differences between the dark blue bars, which are the reported cash from ops numbers and the light blue bars, which strip out changes in operating assets and liabilities, primarily working capital as.

The chart demonstrates the volatility caused by working capital largely evens out over time.

Please now turn to slide 13 for a Q3 cash walk.

The chart at the top of 13 lays out the increase in the Companys cash balance during Q3.

The revenue and operating expenditures bars provide a simple look at the Companys operations with the net of these two borrowers totaling $85 million, which equals our adjusted EBITDA result.

Just to the right you will note the strong working capital result, the convertible bond buyback dividend and the debt service bars, which explain most of the remaining Q3 cash activity.

The chart at the bottom of the slide Similarly covers the cumulative year to date cash movements.

Let's now review slide 14 for our cash breakeven per ship per day.

Cash breakeven per ship per day came in at $11931 for Q3.

The quarter on quarter increase of $190 is due to higher vessel operating costs.

Offset in part by lower Drydocking, G&A interest expense and debt principal repayment.

Vessel expenses or Opex came in at $6566 per ship per day in Q3.

982 higher than prior quarter.

The increase was primarily due to unscheduled required repairs and upgrades to the ships that do not qualify for capitalization.

Increased crew travel costs, along with higher storage and freight expenses.

In short, we continue to face COVID-19 related as well as general inflationary cost pressures.

Drydocking came in at $503 per ship per day in Q3, $601 lower than the prior quarter as we completed dry docking for only one vessel during the quarter as compared to three in Q2.

Cash G&A came in at $1701 per ship per day in Q3 down $17 from Q2. It is worth noting that our G&A per ship calculation is based solely on our owned vessels.

Whereas we operate a larger fleet, which includes our chartered in tonnage. If we were to include our chartered in days in our calculation G&A would improve by almost $300 to $1409 per ship per day.

Cash interest expense came in at $584 per ship per day in Q3, 172 hours lower than the prior quarter as we realized an increase in interest income on our growing cash balances.

Cash debt principal payments came in at $4 lower at $2577 per ship per day in Q3.

Looking ahead, we expect the following per ship per day in Q4.

Opex is likely to remain elevated at similar levels at circa $6600 per day.

Dry docking is expected to decline to $310 on lower drydocking activity.

G&A is expected to be unchanged at 1700 again, it's worth noting that this figure would be about $300 lower if we were to include our charter in ships.

Cash interest expense is expected to decline to circa $500.

Cash debt principal payments is expected to remain flat at $2577 per ship per day.

This concludes my comments I will now turn the call back to Gary.

Thank you Frank Please turn to slide 16.

Year to date supermassive continue to outpace all other drybulk segments with the BSI currently averaging just under 2004 thousand the highest January to September market since 2008.

As mentioned earlier on the call freight rates have moderated in recent months due to a number of factors, including lower global growth as well as uncertainty surrounding the macro landscape, which has impacted aggregate demand and sentiment.

In addition, notwithstanding a general cooling of commodity prices. The U S. Dollar strength has kept landed prices of commodities high impacting purchasing power in trade volumes.

Furthermore, notwithstanding the successful implementation of the Ukraine grain Carter's since July overall grain volumes continue to be impacted by the war and low water levels on the Mississippi River are hindering the ability to get product from the Midwest down River for export.

Another factor, which is difficult to quantify has been the reduction of what we call spillover cargos that we carried as a result of the extremely high container market. While we continue to move some bad cargos and other commodities that have historically been moving on container ships volumes are significantly lower than they were a year ago.

Chinese congestion, which unwound through the first half of the year remains at relatively low levels, primarily driven by muted short term trade volumes.

This factor also has contributed to lower Pacific freight rates due to more available tonnage anecdotally the Atlantic to Pacific rate premium, which is essentially flat in Q3 is now averaging around 35% in Q4 more in line with the historic relationship.

Positively congestion remains elevated in northern Europe has the continent attempts to substitute its energy source away from Russian natural gas year to date European seaborne coal imports total roughly 138 million tonnes up 36% year on year, finally, and importantly, dislocations, resulting.

<unk> from some of the aforementioned factors have positively impacted ton miles as cargoes, such as grain and coal need to move across greater distances from alternative countries of origin. Please now turn to slide 17.

Fuel prices, which reached a 10 year high in Q2 came off meaningfully during the third quarter similar to what we have seen across the commodity spectrum.

<unk> and <unk> averaged $500 and $795 per ton respectively.

Although prices were down the spread between <unk> and <unk> prices widened in Q3, peaking at more than $400 per ton and averaging $295 for the quarter up 29% compared to the prior period.

Pro forma for the Tokyo Eagle 48 out of our 53 ships will be scrubber fitted on an illustrative basis, given eagle's fleet, we estimate that our scrubbers will generate approximately $58 million in incremental net income on an annualized basis, using the 2022 year to date fuel spread figures and the forward curve for the balance of the year.

Please turn to slide 18.

Asset prices have come off their peak levels reached in June given the significant move up in values over the past few years, a cooling off was not unexpected given that we've seen both spot and forward rates correct to the downside.

<unk> liquidity was thin during the summer months with minimal transactions taking place.

As mentioned earlier in September we took advantage of the market illiquidity and picked up a modern high specification scrubber fitted Japanese ultra Max for $27 5 million.

Based on our calculations. This transaction represents roughly a 20% discount to comparable deals done just a few months ago.

S&P liquidity has improved over the past months with pricing fairly stable looking ahead, notwithstanding short term volatility our view has not changed we remain constructive on the market and asset prices in the medium term given the positive supply side dynamic. Please.

Please turn to slide 19.

Net fleet supply growth slowed in Q2, a total of 99 Drybulk Newbuild vessels were delivered during the period down 8% year on year.

Partially offsetting this 13 vessels were scrapped during the same period.

Notably for Igo just for midsized geared vessels were scrapped during the first three quarters of the year. That's four ships out of a fleet of almost 4000 mid sized ships as.

As we've mentioned previously despite high scrap prices the low level of vessel recycling is not too surprising given the strength in the underlying spot market over the past two years.

Positive from this is that there is an ever increasing number of older ships that will inevitably need to be recycled during the coming years.

In terms of forward supply growth. The overall Drybulk order book remains at a historically low level of just around 7% of the on the water fleet.

For 2022 dry bulk net fleet growth is expected to be two 7%, which would be down about 25% as compared with 2021.

Looking ahead 2023 net fleet growth is projected to drop further to just 0.6% driven by continued muted deliveries as well as a significant increase in scrapping volumes. A total of 45 Drybulk ships were ordered during Q3 down about 27% compared to the prior quarter and less than half of the <unk>.

Average over the last five years of roughly 115 ships per quarter.

It's worth noting that the vast majority of ships being ordered today will only be delivered in 2024 and 2025.

Although we expect some level of ordering to continue we still believe it will remain low for the reasons. We've articulated many times before please turn to slide 20.

This is a new slide we are including in this quarter's presentation. It depicts the average age of the Super Max Ultra Max fleet going back 30 years overlaid against the order book as a percentage of the on the water fleet.

It's interesting to see how quickly the fleet is aging in recent years and will most certainly outpaced the historical high reached 1994. This is not only the result of the decreasing number of new buildings entering the market, but also due to the fact that smaller number of older ships are getting scrapped as.

As mentioned previously the order book today remains at a historically low level given the relative cost advantage of secondhand ships versus new buildings as well as the uncertainty surrounding de carbonization and future fuel propulsion technology, we believe ordering will remain low for quite some time.

We believe these dynamics combined with a record low order book with a near record fleet age will further improve the supply side in terms of fleet utilization and scrapping.

Please turn to slide 21.

After reaching a multiyear high last year, the Drybulk trade demand growth is expected to come in at negative one 6% for the full year 2022, however, after taking into account the significant ton mile effect.

As by the war in Ukraine, the deficit growth rate improved by 110 basis points.

The impact to demand. This year is a direct result of global slowdown as a result of high inflation and tighter monetary policy across the developed world as well as a continuation of China's restrictive zero Covid policy.

For 2023, the IMF is currently projecting global GDP growth to reach two 7% a decrease of 50 basis points as compared to the current year estimate.

In terms of dry bulk trade demand growth is expected to improve by 240 basis points in 2023 to reach a level of positive <unk>, 8% on a core basis and higher when factoring in a positive ton mile effect.

Please turn to slide 22.

In evaluating drybulk demand in more detail growth rates for 2022 are now expected to come in lower for both major and minor bulks.

This is primarily driven by downward revisions to volumes in steel fertilizer forest products and cement.

As we look into 2023 is great deal of variability in forecasted growth rates amongst the various drybulk commodities.

Volumes for infrastructure related commodities, such as iron ore steel and cement are expected to come off basis. The current views of weaker Chinese demand and lower global economic activity.

On the other hand, which typically represents anywhere from 15% to 20% of our cargoes as effective to grow by over 2% and we expect this figure to be even greater when factoring in the increased ton mile effect for this particular commodity primarily as a result of Europe's changing energy mix. Additionally.

Additionally, grain, which typically represents anywhere from 10% to 15% of our cargo mix are projected to grow by four 3% as black Sea exports are expected to normalize and grain production led by soybeans increases in both the U S and in Brazil, Please turn to slide 23.

Given our exclusive focus on the mid sized segment with an ability to carry all dry bulk commodities in our commercial platform with a track record of meaningful outperformance I believe we are in an optimal position to maximize utilization and capitalize on a rapidly evolving environment.

Looking forward notwithstanding current uncertainty in the macro landscape, we remain optimistic about the medium term prospects for the dry bulk industry, particularly based on strong supply side fundamentals with a modern fleet of 53 predominantly scrubber fitted vessels roughly $300 million of liquidity Eagle is in a very unique leadership position.

<unk> and we're looking forward to continuing to deliver superior results for our stakeholders that large with that I would like to now turn the call over to the operator and answer any questions that you may have.

Operator.

Certainly as a reminder to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.

<unk>.

And our first question will come from Omar Knockdown of Jefferies. Your line is open Omar.

Thank you.

Gary.

Good morning.

First off.

I can see you're sounding a bit more potentially acquisitive given the softer market here recently.

More so than you've been call. It first half of 'twenty one.

Agreed to buy one ultra Max I wanted to get your thoughts here on how you see the platform from here I know this is probably a bit sensitive, but <unk> been reported to have looked at the Greenbrier deal.

Which would have added a good amount of handy sized exposure is that something you're interested in getting into the handy or should we think from here that it's still more about focusing on ultra and super.

Yes, I think what I would say in general terms is that we are although one of the largest owners of Super Max Ultra Max vessels were a very small part of the market and we feel that increasing in our core segment makes a lot of sense, having said that.

Spanning beyond that if a if a transaction were to bring us.

Two others other sub segments within dry bulk as well, we're very comfortable with that but it's not a specific desire for us because we.

We think we have the ability to increase within the call. It the $50 55 to 65000 deadweight size. So but there are there are crossovers between them. So as I said, we're not opposed to getting outside of our of our core focus up supermaxilla from Max.

Under the right circumstances.

Okay. That's helpful, Gary and I guess I might add sorry, I might add going forward. So we added this ship. It was opportunistic we felt the market was great and we pick that ship up scrubber fitted ship. We think is a really attractive number and we're going to continue to look at opportunistic.

Additions as well, we think that over the next number of months as you know we have a significant cash balance total liquidity of some $300 million and so we think that adding and at levels below where where the peak was in May June of this year, given our constructive view of the kind.

Kind of medium term given what we keep talking about how compelling the supply sidewalks, particularly with the aging fleet and so I think.

You'll see us continue to add on an opportunistic basis.

Yes that sounds good Gary I guess.

<unk> went over.

The interest rate swap that you entered into a secured debt credit facility last year generally speaking you mentioned being opportunistic how are you viewing acquiring assets here in this higher interest rate environment. How are you thinking about how you execute those opportunities versus say two years ago. When you were a bit more acquisitive.

Yes.

It's a great question, because a year ago, Frank mentioned right. We entered into those swaps at 87 basis points today, one year LIBOR is five 5%. So it's a completely different environment, we have decided to.

To pay for the Tokyo, igo with 100% of cash given our balance.

But we're keenly aware of the fact that if you put leverage on a vessel today of 50%.

Your interest your debt is significantly more expensive right. So it just it just as part of the part of the discussion obviously, we haven't hedged future debt that we might take on prefer for vessels I think it's helpful. In that it gives people pause and we will limit speculative buying because it just makes ownership and.

Those cash break evens that much greater if youre, if youre not using cash and of course, if you're using our equity than the cost of capital is even higher.

On an overall basis on a weighted basis. So it definitely comes into the equation for us, but given our robust cash balance at the moment it doesn't impact the Tokyo Eagle and we likely would if we were acquire another one or two ships, we likely will do that with cash as well, but that's a decision to be taken at that time.

Yes got it thanks, guys I'll turn it over.

Okay. Thank you.

One moment.

Our next question will come from.

Stifel. Your line is open.

Thank you.

Hey, Gary correct.

Good morning.

Okay.

I wanted to start a little bit macro I really just have two questions.

First of all I have had sort of expected or I guess normally by this time of the year in November .

We we normally would see some seasonal uptick grain and everything else and I. Appreciate that this year is different but Gary can you just do you have any thoughts on.

If we're going to see a seasonal surge in dry bulk demand this year or where if all of the.

All of the Crazy things that are happening in the world might make this.

A year, when we don't actually see that.

Yes, I think as you said, it's anything but normal there's a lot of things at play at the moment not to.

Recap them, all again, but even in the even the North American harvest were having challenges getting grain down river.

Because of low water levels. So that's of course not helpful. But I think it really more it comes down to demand even than the supply side of things.

There's just there's just less demand even on the soybean front year to date before before U S exports China's soybean.

Imports are down, 3% and Brazil had plenty of product as an example, and so I think you have overall the revisions downward of fertilizer.

That was expected to be flat just a quarter ago is now coming in at almost down 5% and things like that so we're much more cautious. The good news is is that these downward revisions really speak to whats happened over the last three to four months and of course, the balance of the year, but we've enjoyed a pretty robust mark.

October settled at over 18000, a day for a Super Max says on the BSI. So I don't we may not we're not planning on a pop here. If you will for the for the quarter, but we as you know, we just reported already having 70% coverage at 25000, which we think is.

A pretty robust number we positioned ourselves coming into the to the quarter four.

For that and of course, if we'll take an upside but at the moment, we're not planning on it.

Okay.

That's helpful. Appreciate it and then and then for my second question sort of goes to capital allocation ties in with what Omar was talking about obviously asset values have come in a little bit, but as you say.

In that period of uncertainty.

Interest rates are higher cost of capital is higher.

I guess.

And then also interestingly you guys bought back $10 million of converts as you sort of it sounds like you are open for more acquisitions, but how do you balance that against something like buying a converged here.

Taking all potential dilution just.

Also strengthening the balance sheet a little bit further.

We're in a period where.

Again, there is some uncertainty you guys want to grow the fleet, but but there is other options too so.

Maybe talk through that balance a little bit.

Sure So I'll start with the fact.

We feel very comfortable with the strength of the balance sheet as I mentioned $300 million of total liquidity.

Including a $100 million Undrawn revolver.

And as Frank mentioned that Tokyo Eagle will be our fourth completely unencumbered vessel. So we could we could add.

We have an accordion feature under our first lien.

Bank debt facilities, so we could add that to those freeing up more cash if we desire, but again, we also talked about the underlying cost the cost of debt today. So absolutely we look at the balance between in this quarter. We did both we bought back the $10 million face value of the bonds. We did that when our shares were trading at around <unk> 41.

So we felt it was compelling.

To take off that future dilution.

That along with acquiring ships are.

The balance along the way so I think we've demonstrated that we were able and willing to do both but really it depends where ship values are versus where our shares are trading.

And then ultimately how much cash we want to keep on the balance sheet. So those are things we have to ask ourselves every day as we come in.

We remain very constructive on the market because of the supply side. So if we can use this period.

Where values have come in somewhat and let's see where they are over the next few months. If we can continue to build on and build on the fleet now now that the heavy lifting of our of selling our older assets. We've done 20 ships. We only have one more ship that's over 15 years old that likely will be sold before.

Special Survey Drydock, then we can focus although we've been able to grow the fleet a lot of that growth has been offset by a netting of sales and now we're at we think we're in a position where as long as we can do it accretively building the fleet from here, we think it makes sense.

Alright, I appreciate it and thanks for taking my call.

Great. Thank you.

As a reminder, if you would like to ask a question. So one one on your Touchtone telephone.

Again for any questions. Please press star one line.

One moment.

And our next question comes from Liam Burke of B Riley financial your line is open. Thank you and good morning, Gary Good morning, Frank.

Good morning.

On the on your Opex there were higher sequentially. There were a lot of one time charges that will probably spill into the fourth quarter, but as I look at a more normalized opex rate do you still see the need to continue to invest in the vessels or do you see some flattening or declining of opex.

Vessel.

Yes, I mean, I think right now, it's really hard to project out because we're in an environment, where we're seeing we're seeing higher costs, particularly around things like crew travel.

I don't know if you've tried to book a flight lately, but but the prices are extraordinary.

And particularly some of the ones from from Eastern Europe , there's less flights and costs are high.

And then also moving things spares and stores and things like that so hopefully we believe that hopefully will moderate but it's hard to have visibility on it and in terms of upgrades.

As I've said before.

We're keenly focused on trying to keep opex down, but our first focus is to ensure that ships are able to.

Trade.

Without without being hindered in terms of <unk>.

Cargo holds and low friction hull coatings, so they're efficient and not putting too much.

<unk> fuel and things like that and sometimes we'll take a ship out of service and it doesn't qualify for.

For dry dock accounting, because it's not up to the five year cycle. So it's hard to have real visibility, but we are we are keenly aware that those levels are up.

And we were looking to hopefully bring them down, but as we said and as Frank said in the prepared comments, we expect the fourth quarter to remain elevated and of course, we'll provide guidance for Q1 as we as we move forward.

Great and on the macro front I mean coal is an important commodity that you ship there has been dislocation with longer route miles, but generally are you seeing overall demand for coal will be able to support the overall.

Demand in the shipping part of the business.

Sorry could you just repeat that sure.

There's been a lot of dislocation on demand for coal due to the Ukraine crisis.

In a normalized basis are you seeing overall demand for call, increasing and helping to boost the rates.

Yes, I think the short answer is we are right because what we had this year as China is down about 16%.

As a meaningful amount.

Some odd million tonnes.

Because of.

Domestic production, but also cost because of the Covid lockdowns and lack of economic activity and notwithstanding that call. Overall. This year is relatively flat, India, India was up in Europe is importing significantly more coal. So as we look forward into next year expectation is for China.

To be flat.

But for the world overall to be up a couple percent and as mentioned in the prepared remarks, we think that 2% increase next year, that's forecasted on a ton mile basis will be significantly higher again because of that dislocation that you referred to so.

I think long term.

Not not not a upward trend for coal, but I think in the short term given energy security, we think it's going to it's going to show growth for at least for 2023.

Great. Thank you Gary.

One moment.

Yes.

Our next question will come from Paul Fred.

<unk> Global partners. Your line is open.

Good morning, Gary.

Just two questions.

You covered opex.

But on the capital allocation front should we expect from here continued buybacks of the convert.

Not opportunities.

Basic basic basis, obviously, but is that something that is sort of the primary.

<unk> focus on capital allocation versus Scott buybacks, and then secondly can you talk about the change in your quarterly presentation on your FSA book.

And also just talk about your hedging strategy going forward.

Sure.

Yes, so why don't I start with the on.

On the FFA Buck, we decided to break out the.

The cells and then the buys.

The buybacks because we do a number we do some of that prior to the quarter that were in and because of that if we didn't if we didn't break it out.

It indicates a misalignment in other words the profit from the buyback you can see that we've bought back the cells profitably that number would push the effective rate of the cells remaining sales up dramatically and so what would have shown is that we we had some sales at levels, where the market never reached for Q.

Q4, and so.

It just would it would indicate something that didn't really happen so by breaking it out. It gives you more clarity and that's why we've done it.

And if that's clear then I'll move on to.

Sorry did you have something.

Yes, I guess, so if you look at your net position for 2023.

Youre effectively unhedged.

Yes, so as of September 30, the <unk>.

<unk> position was effectively unhedged that is correct and part part of so I can only speak to September 30, if not what we've done since then but the forward market for the particularly the paper markets for 2023 has been very backward dated.

All along and I think if you look at if you look at.

The market today for Cal 'twenty three it's around 12000, so a significant discount.

Two.

Current market I mean, we're in a bit of a.

A weak period right here, but as I mentioned in October settled at AT&T <unk> and so it's a decision as to walk in that kind of that kind of a number on paper I think we've been fairly successful what timing when we when we use paper on one we use physical and we don't disclose our physical book, but you are correct that paper.

<unk> position as of September 30 was.

Essentially neutral.

If I move on to speak to capital allocation.

I think again.

And everyday asking what what is the best use of capital and when our shares traded down around the $41. We thought the buyback of the convert made sense the convert because it is so in the money. It trades highway it's highly correlated to the way our shares trade and so buying them back when the shares are down is similarly accrete.

Dave too.

As if we were buying back shares but of course, if you believe that buying back shares or are beneficial of the share price that pushes the price of the convert up so it takes away future dilution.

Maturity. So as we've said before we are we believe that setting aside capital cash too.

Buybacks that convert either at maturity or or prior to maturity, which is what we did for $10 million of the face value in the last quarter, we think makes sense and so it will be I think it will be opportunistic about it but on any given day visit decision, making decision process as to what it is but.

Based on my comments I think we believe that buying back the converts as similar to buying back shares but has other benefits and I'll leave it at that.

Great. Thanks for your time.

Thank you.

<unk>.

One moment.

And our next question will come from climate Mullins of value Investor's edge. Your line is open.

Good morning, Thank you for taking my questions.

Felicia is pretty outstanding operational performance.

On the question regarding the convexity bonds should.

Should we think about the repurchases is kind of a one off opportunity that you took advantage of or do you believe this is something you could repeat going forward.

It's definitely first of all thanks for the comment.

On the quarter.

It's definitely something we could repeat our shares traded down.

During the quarter, we saw that opportunity and we intend to be opportunistic as well just as we believe we were on the asset purchase this quarter. So.

I'm not going to say that you should consider this to be a quarterly event, but if we believe it presents good value.

And the best value for our shareholders capital then you could see us acting again.

So it's really just going to have to be a wait and see but but we clearly I think have demonstrated I've said that in the past and people said, but Gary you haven't done anything. So I think now we've demonstrated that we've acted on buying back the converts.

That we were willing to do so and we're able to do so and I think that speaks to how we might act in the future.

Thanks for the color that's all for me. Thank you for taking my question.

Thanks.

And I'm showing no further questions I would now like to hand, the call back to Gary Vogel for closing remarks.

Great. Thank you operator, we don't have anything further so I'd like to thank everyone for taking the time today to be with us and wish everyone. A good day and a good weekend.

This concludes today's conference. Thank you for participating you may now disconnect.

[music].

Good day and thank you for standing by welcome to the Eagle Bulks, a third quarter 2022 earnings conference call.

At this time all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone. Please be advised that today's conference is being recorded I would now like to hand, the conference over to Gary Vogel. Please go ahead.

Thank you and good morning, I would like to welcome everyone to Eagle Bulks third quarter 2022 earnings call.

Our remarks today I would encourage participants to access a slide presentation that is available on our website ego 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 and 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.

Filiation to the most comparable GAAP financial measures. Please now turn to slide six.

<unk> on derivative hedges and other noncash items net income came in at $74 three.

$3 million or $5 72 per share.

Based on this result, and consistent with our stated capital allocation strategy Eagles Board of directors declared a cash dividend of $1 80 per share equating to 30% of earnings.

Our fifth consecutive quarterly dividend, bringing total shareholder distributions to $10 <unk> per share since we adopted our capital allocation strategy, just 13 months ago. Additionally.

Additionally, we opportunistically repurchased approximately 9% or 10 million face amount of our convertible bond debt in the open market.

As part of our ongoing fleet growth and renewal strategy, we acquired a high specification in 2015 belt scrubber fitted ultra Max for $27 $5 million the.

The vessel was constructed at <unk> in Japan, and will be renamed the motor vessel Tokyo Eagle delivery is expected within November .

Separately in August we closed on the sale of the motor vessel Cardinal at 2004 built Super Max ship with solve for $15 $8 million pro forma for these transactions our fleet totals 53 ships, averaging about nine eight years of age with 91% being fitted with scrubbers. Please turn.

Turn to slide seven.

Our third quarter financial results were driven by exceptional top line performance, especially when compared to the underlying market.

Please turn to slide eight.

Our trailing 12 month EBITDA run rate remains essentially flat as compared to the last quarter coming in at $364 million.

Modest EV EBITDA multiple of just two three times.

I would now like to turn the call over to Frank who will review our financial performance in more detail.

Thank you Gary Please turn to slide 10 for a summary of our third quarter financial results.

TCE revenues totaled $128 9 million in Q3 versus $138 2 million in Q2.

The decrease was mainly due to lower market rates offset in part by a slight increase in available days.

Net income.

<unk> for Q3 was $77 2 million.

Earnings per share for the third quarter was $5 94.

On a basic basis.

On a dilutive basis, which primarily includes the shares related to the convertible bond.

<unk> came in at $4 77.

For the quarter.

Adjusted net income, which excludes noncash unrealized gains on derivatives and a loss on debt extinguishment came in at $74 3 million for the third quarter or $5 72 per share on a basic basis.

On a diluted basis, we achieved adjusted EPS.

A $4 58 for the quarter.

Adjusted EBITDA for the third quarter was $85 1 million.

As Gary noted during the quarter, we repurchased $10 million in face value of our convertible bonds, which reduced our diluted share count by approximately 300000 shares.

Let's now turn to slide 11 for an overview of our balance sheet and liquidity.

Total cash at the end of Q3 was $197 6 million, an increase of $56 1 million.

As compared to Q2 'twenty two.

The significant growth in the company's cash balance was primarily driven by strong operating results as well as the receipt of $14 9 million in net proceeds from the sale of one vessel.

These inflows were partially offset by the ultra low debt facilities quarterly amortization payment of $12 4 million.

A $4 1 million dollar deposit paid for the purchase of the Tokyo Eagle <unk>.

<unk> $14 2 million dollar payment to purchase a portion of our convertible bonds and $28 8 million.

Of dividend payment.

Total liquidity came in at $297 6 million at the end of Q3.

Total liquidity is comprised of total cash of $197 6 million.

And $100 million of a fully undrawn revolving credit facility.

It is important to note that we own three unencumbered vessels, which provide us with additional flexibility to increase our liquidity.

We intend to use cash on hand to pay for the Tokyo Eagle, which will provide us with a fourth unencumbered vessel once the Tokyo was delivered to us in the fourth quarter.

Total debt at the end of Q3 was $354 3 million an improvement of $22 4 million from Q2, driven by the quarterly repayment of the ultra coat debt facility and the repurchase of the convertible bonds.

We entered into interest rate swaps around the time of our global refinancing in early October of 2021 to fix the interest rate exposure on the term loan.

As a result of these swaps, which averaged 87 basis points. The company's interest rate exposure is fully fixed insulating us from the adverse impact of rising interest rates.

Please now turn to slide 12 for an overview of our cash flows from operations for the third quarter of 2022.

Net cash provided by operating activities was $102 3 million, an increase of $4 3 million from Q2.

Strong receivables collection.

Drove the quarter on quarter increase.

Our working capital management as outstanding as reflected by the company's strong overall cash conversion cycle.

Chart demonstrates the volatility caused by working capital largely evens out over time.

Please now turn to slide 13 for a Q3 cash walk.

The chart at the top of 13 lays out the increase in the Companys cash balance during Q3.

The revenue and operating expenditures bars provide a simple look at the Companys operations with the net of these two borrowers totaling $85 million, which equals our adjusted EBITDA result.

Just to the right you will note the strong working capital result, the convertible bond buyback dividend and the debt service bars, which explain most of the remaining Q3 cash activity.

The chart at the bottom of the slide Similarly covers the cumulative year to date cash movement.

Let's now review slide 14 for our cash breakeven per ship per day.

Cash breakeven per ship per day came in at $11931 for Q3.

Quarter on quarter increase of $190 is due to higher vessel operating costs.

In part by lower Drydocking, G&A interest expense and debt principal repayment.

Vessel expenses or Opex came in at $6566 per ship per day in Q3.

982 higher than prior quarter. The increase was primarily due to unscheduled required repairs and upgrades to the ships that do not qualify for capitalization.

Increased crew travel costs, along with higher storage and freight expenses.

In short, we continue to face COVID-19 related as well as general inflationary cost pressures.

Drydocking came in at $503 per ship per day in Q3, $601 lower than the prior quarter as we completed dry docking for only one vessel during the quarter as compared to three in Q2.

Cash G&A came in at $1701 per ship per day in Q3 down $17 from Q2. It is worth noting that our G&A per ship calculation is based solely on our owned vessels.

Whereas we operate a larger fleet, which includes our chartered in tonnage. If we were to include our chartered in days in our calculation G&A would improve by almost $300 to $1409 per ship per day.

Cash interest expense came in at $584 per ship per day in Q3 $170 lower than the prior quarter as we realized an increase in interest income on our growing cash balances.

Cash debt principal payments came in at $4 lower at $2577 per ship per day in Q3.

Looking ahead, we expect the following per ship per day in Q4.

Opex is likely to remain elevated at similar levels at circa $6600 per day.

Dry docking is expected to decline to $310 on lower drydocking activity.

G&A is expected to be unchanged at 1700 again it is worth noting that this figure would be about $300 lower if we were to include our chartered in ships.

Cash interest expense is expected to decline to circa $500.

Cash debt principal payments is expected to remain flat at $2577 per ship per day.

This concludes my comments I will now turn the call back to Gary.

Thank you Frank Please turn to slide 16.

Year to date supermassive continue to outpace all other drybulk segments with the BSI currently averaging just under 24000, the highest January to September market since 2008.

In addition, notwithstanding a general cooling of commodity prices. The U S. Dollar strength has kept landed prices of commodities high impacting purchasing power in trade volumes.

Chinese congestion, which unwound through the first half of the year remains at relatively low levels, primarily driven by muted short term trade volumes.

This factor also has contributed to lower Pacific freight rates due to more available tonnage anecdotally the Atlantic to Pacific rate premium, which was essentially flat in Q3 is now averaging around 35% in Q4 more in line with the historic relationship.

Fuel prices, which reached a 10 year high in Q2 came off meaningfully during the third quarter similar to what we have seen across the commodity spectrum.

<unk> and <unk> averaged $500 and $795 per ton respectively.

Although prices were down the spread between <unk> and <unk> prices widened in Q3, peaking at more than $400 per ton and averaging $295 for the quarter up 29% compared to the prior period.

Please turn to slide 18.

<unk> liquidity was thin during the summer months with minimal transactions taking place.

As mentioned earlier in September we took advantage of the market illiquidity and picked up a modern high specification scrubber fitted Japanese ultra Max for $27 $5 million.

On our calculations this transaction represents roughly a 20% discount to comparable deals done just a few months ago.

SMP liquidity has improved over the past months with pricing fairly stable looking ahead, notwithstanding short term volatility our view has not changed we remain constructive on the market and asset prices in the medium term given the positive supply side dynamics. Please.

Please turn to slide 19.

Net fleet supply growth slowed in Q2, a total of 99 Drybulk Newbuild vessels were delivered during the period down 8% year on year.

Partially offsetting this 13 vessels were scrapped during the same period.

Notably for Eagle just for mid sized geared vessels were scrapped during the first three quarters of the year. That's four ships out of a fleet of almost 4000 mid sized ships as.

As we've mentioned previously despite high scrap prices the low level of vessel recycling is not too surprising given the strength in the underlying spot market over the past two years.

Positive from this is that there is an ever increasing number of older ships that will inevitably need to be recycled during the coming years.

In terms of forward supply growth. The overall Drybulk order book remains at a historically low level of just around 7% of the on the water fleet.

For 2022, Drybulk net fleet growth is expected to be two 7%, which would be down about 25% as compared with 2021.

Average over the last five years of roughly 115 ships per quarter.

It's worth noting that the vast majority of ships being ordered today will only be delivered in 2024 and 2025.

Although we expect some level of ordering to continue we still believe it will remain low for the reasons. We've articulated many times before please turn to slide 20.

This is a new slide we are including in this quarter's presentation. It depicts the average age of the Supermac salt from Max Fleet going back 30 years overlaid against the order book as a percentage of the on the water fleet.

We believe these dynamics combined with a record low order book with a near record fleet age will further improve the supply side in terms of fleet utilization and scrapping.

Please turn to slide 21.

As by the war in Ukraine, the deficit growth rate improved by 110 basis points the impact to demand. This year is a direct result of global slowdown as a result of high inflation and tighter monetary policy across the developed world as well as a continuation of Chinese restrictive zero Covid policy for <unk>.

<unk> 2023, the IMF is currently projecting global GDP growth to reach two 7% a decrease of 50 basis points as compared to the current year estimate.

In terms of Drybulk trade demand growth is expected to improve by 240 basis points in 2023 to reach a level of positive <unk>, 8% on a core basis and higher when factoring in a positive ton mile effect.

Let's turn to slide 22.

In evaluating drybulk demand in more detail growth rates for 2022 are now expected to come in lower for both major and minor bulks.

This is primarily driven by downward revisions to volumes in steel fertilizer forest products in for Matt.

As we look into 2023 is great deal of variability in forecasted growth rate amongst the various drybulk commodities.

Volumes for infrastructure related commodities, such as iron ore steel and cement are expected to come off basis. The current views of weaker Chinese demand and lower global economic activity.

On the other hand, which typically represents anywhere from 15% to 20% of our cargoes is affected to grow by over 2% and we expect this figure to be even greater when factoring in the increased ton mile effect for this particular commodity primarily as a result of Europe's changing energy mix.

Given our exclusive focus on the mid sized segment with an ability to carry all drybulk commodities and a commercial platform with a track record of meaningful outperformance I believe we are in an optimal position to maximize utilization and capitalize on a rapidly evolving environment.

Certainly as a reminder to ask a question you will need to press star one on your telephone please standby, while we compile the Q&A roster.

<unk>.

And our first question will come from Omar Knockdown of Jefferies. Your line is open Omar.

Thank you.

Gary.

Good morning.

First off.

I can see you're sounding a bit more potentially acquisitive given the softer market here recently.

More so than you've been call. It first half of 'twenty one.

Which would have added a good amount of handy size exposure is that something you're interested in getting into the handy or should we think from here that it's still more about focusing on ultra and super.

Yes, I think what I would say in general terms is that we are although one of the largest owners of Supermac Ultra Max vessels were a very small part of the market and we feel that increasing in our core segment makes a lot of sense, having said that.

Spanning beyond that if a if a transaction were to bring us.

Two other other sub segments within dry bulk as well, we're very comfortable with that but it's not a specific desire for us because we.

We think we have the ability to increase within the call. It. The 50 55 to 65000 deadweight size. So but there are there are crossovers between them. So as I said, we're not opposed to getting outside of our of our core focus up supermaxilla from Max.

Under the right circumstances.

Okay. That's helpful, Gary and I guess I might add sorry, I might add going forward. So we added this ship. It was opportunistic we felt the market was illiquid and we pick that ship up scrubber fitted ship. We think is a really attractive number and we're going to continue to look at opportunistic.

Additions as well, we think that over the next number of months as you know we have a significant cash balance total liquidity of some $300 million and so we think that adding in at levels below where where the peak was in May June of this year, given our constructive view of the kind of medium term.

Given what we keep talking about how compelling the supply sidewalks, particularly with the aging fleet and so I think youll see us continue to add on an opportunistic basis.

Yes that sounds good Gary I guess.

Frank went over.

The interest rate swap that you entered into secured debt credit facility last year generally speaking you mentioned being opportunistic how are you viewing acquiring assets here in this higher interest rate environment. How are you thinking about how you execute those opportunities versus say two years ago. When you were a bit more acquisitive.

Yes. It is.

To pay for the Tokyo, igo with 100% of cash given our balance.

But we're keenly aware of the fact that if you put leverage on a vessel today of 50%. Your interest your debt is significantly more expensive right. So it just it just as part of the part of the discussion obviously, we haven't hedged future debt that we might take on for for for vessels I think it's helpful in that it can.

Gives people pause and we will limit speculative buying because it just makes ownership and those cash break evens that much greater.

We are not using cash and of course, if you're using all equity then the cost of capital is even higher.

On an overall basis on a weighted basis. So it definitely comes into the equation for us, but but given our robust cash balance at the moment it doesn't impact the Tokyo Eagle and we likely would if we were acquire another one or two ships, we likely will do that with cash as well, but that's a decision to be taken at that time.

<unk>.

Yes got it thanks, Darren ill turn it over.

Okay. Thank you.

One moment.

Our next question will come from.

With Stifel. Your line is open Ben.

Thank you.

Hey, Gary correct.

Good morning.

Okay.

I wanted to start a little bit macro I really just have two questions.

First of all I have had sort of expected or I guess normally by this time of the year in November .

We we normally would see some seasonal uptick grain and everything else and I appreciate that this year is different but.

Gary can you just do you have any thoughts on.

If we're going to see a seasonal surge in drybulk demand this year or where if all of the <unk>.

All of the Crazy things that are happening in the world might make this.

A year, when we don't actually see that.

Yes, I think as you said, it's anything but normal there's a lot of things at play at the moment not to.

In a recap them all again, but even in the even the North American harvest were having challenges getting grain down river.

Because of low water levels. So that's of course not helpful. But I think it really more it comes down to demand even than the supply side of things.

There's just there's just less demand I mean, even on the soybean front year to date before before U S exports China's soybean.

Imports are down, 3% and Brazil had had plenty of product as an example, and so I think you have overall the revisions downward of fertilizer.

But where October settled at over 18000, a day frac.

Supermac says on the BSI. So I don't we may not we're not planning on a pop here if you will.

For the quarter, but we as you know we just reported.

Having 70% coverage at 25000, which we think is a pretty robust number we positioned ourselves coming into the to the quarter four.

For that and of course, if we'll take an upside but at the moment, we're not planning on it.

Okay.

That's helpful. I appreciate it and then and then for my second question sort of goes to capital allocation ties in with what Omar was talking about obviously asset values have come in a little bit, but as you say.

In that period of uncertainty.

Interest rates are higher cost of capital is higher.

I guess.

Taking all potential dilution just.

<unk>.

Also strengthening the balance sheet a little bit further.

We're in a period where.

Again, there is some uncertainty you guys want to grow the fleet, but but there is other options too so.

Maybe talk through that balance a little bit.

Sure So I'll start with the fact.

We feel very comfortable with the strength of the balance sheet as I mentioned $300 million of total liquidity.

Including a $100 million Undrawn revolver.

And as Frank mentioned, the Tokyo Eagle will be our fourth completely unencumbered vessel. So we could we could add.

We have an accordion feature under our first lien.

Bank debt facilities, so we could add that to those freeing up more cash if we desire, but again, we also talked about the underlying cost the cost of debt today. So absolutely. We look at the balance between in this quarter. We did both we bought back $10 million of face value of the bonds. We did that when our shares were trading at around <unk> 41.

So we felt it was compelling.

To take off that future dilution.

That along with acquiring ships are.

The balance along the way so I think we've demonstrated that where we were able and willing to do both but really it depends where ship values are versus where our shares are trading.

And then ultimately how much cash we want to keep on the balance sheet. So those are things we have to ask ourselves every day as we come in.

We remain very constructive on the market because of the supply side. So if we can use this period, where the where values have come in somewhat and let's see where they all over the next few months. If we can continue to.

Build on build on the fleet now now that the heavy lifting of our of selling our older assets. We've done 20 shifts we only have one more ship that's over 15 years old that likely will be sold before the next special survey Drydock. Then we can focus although we've been able to grow the fleet a lot of that growth has been offset by a netting of sales and now.

We think we're in a position where as long as we can do it accretively building the fleet from here, we think makes sense.

Alright, I appreciate it and thanks for taking my call.

Great. Thank you.

As a reminder, if you would like to ask a question Selman one one on your Touchtone telephone.

Again for any questions. Please press star one line.

One moment.

And our next question comes from Liam Burke of B Riley financial your line is open. Thank you and good morning, Gary Good morning, Frank.

Good morning.

Vessel.

Yes, I mean, I think right.

Right now, it's really hard to project out because we're in an environment, where we're seeing we're seeing higher costs, particularly around things like crew travel.

I don't know if you've tried to book a flight lately, but but the prices are extraordinary.

And particularly some of the lines from.

Eastern Europe , there's less flights and costs are high.

And then also moving things spares and stores and things like that so hopefully we believe that hopefully will moderate but it's hard to have visibility on it and in terms of.

Grades as I've.

<unk> said before.

We're keenly focused on trying to keep opex down, but our first focus is to ensure the ships or are able to trade.

Without without being hindered in terms of.

Cargo holds and low friction hull coatings, so their assertion and not putting too much.

Excess fuel and things like that and sometimes we will take a ship out of service and it doesn't qualify for.

For dry dock accounting, because it's not up to the five year cycle. So it's hard to have real visibility, but we are we are keenly aware of that.

These levels are up and we look we're looking to hopefully bring them down, but as we said and as Frank said in the prepared comments, we expect the fourth quarter to remain elevated and of course, we will provide guidance for Q1 as we as we move forward.

Great and on the <unk>.

Macro front I mean coal is an important commodity that you ship there has been dislocation with longer Rob miles, but generally are you seeing overall demand for coal will be able to support your.

Overall demand in the shipping part of the business.

Sorry could you just repeat that sure.

There's been a lot of dislocation on demand for coal due to the Ukraine crisis.

In a normalized basis are you seeing overall demand for call, increasing and helping to boost the rates.

Yes, I think the short answer is we are right because what we had this year is China is down about 16%.

Is a meaningful amount.

Some odd million tonnes.

Because of.

Domestic production, but also cost because of the Covid lockdowns and lack of economic activity and notwithstanding that call. Overall. This year is relatively flat, India, India was up and Europe is importing significantly more coal. So as we look forward into next year expectation is for China.

To be flat.

I think long long term.

Not not not a upward trend for call, but I think in the short term given energy security.

We think it's going to it's going to show growth at least for 2023.

Great. Thank you Gary.

Thank you.

One moment.

Yes.

Our next question will come from Paul Fred.

Alliance Global partners. Your line is open.

Good morning, Gary.

Just two questions.

You covered opex.

But on the capital allocation front I mean should we expect from here continued buybacks of the convert.

Not opportunities.

Great.

Basic basis, obviously.

Is that something that is sort of the primary.

Focus on capital allocation versus Scott buybacks, and then secondly can you talk about the change in your quarterly presentation on your FSA book.

And also just talk about your hedging strategy going forward.

Sure.

Yes, so why don't I start with the on.

On the FFA Buck, we decided to break out the.

The cells and then the buys the.

The buybacks because we do a number we do some of that prior to the quarter that were in and because of that if we didn't if we didn't break it out.

It is.

Indicates a misalignment in other words the profit from the buyback you can see that we bought back the cells profitably that number would push the effective rate of the cells remaining sales up dramatically and so what would have shown is that we we had some sales at levels, where the market never reached for Q4 and.

So it just would it would indicate something that didn't really happen so by breaking it out. It gives you more clarity and that's why we've done it.

And if that's clear then I'll move on to.

Sorry did you have something.

Yes, I guess, so if you look at your net position for 2023.

Youre effectively unhedged.

Yes, so as of September 30, the <unk>.

All along and I think if you look at if you look at.

The market today for Cal 'twenty three it's around 12000, so a significant discount.

Two to the to the current market I mean, we're in a bit of a.

Of a weak period right here, but as I mentioned in October settled at 18, $2 50, and so it's a decision as to lock in that kind of that kind of a number on paper I think we've been fairly successful at timing when we when we use paper on one we use physical and we don't disclose our physical book, but but you are correct that paper.

Our position as of September 30 was.

Essentially neutral.

If I move on to speak to capital allocation.

I think again.

Everyday asking what what is the best use of capital and when our shares traded down around the $41. We thought the buyback of the convert made sense the convert because it's so in the money. It trades highway it's highly correlated to the way our shares trade and so buying them back when the shares are down is similarly accretive.

I've two.

As if we were buying back shares but of course, if you believe that buying back shares or are beneficial of the share price that pushes the price of the convert up so it takes away future dilution.

Charity, So as we've said before we.

We believe that setting aside capital cash too.

Buy back that convert either at maturity or or prior to maturity, which is what we did for $10 million of the face value in the last quarter, we think makes sense and so it will be I think we'll be opportunistic about it but on any given day visit decision, making decision process as to what it is but.

Based on my comments I think we believe that buying back the converts as similar to buying back shares but has other benefits and I'll leave it at that.

Great. Thanks for your time.

Thank you.

Thanks.

One moment.

And our next question will come from climate Mullins of value Investor's edge. Your line is open.

Good morning, Thank you for taking my questions and congrats.

Deletions pretty outstanding operational performance.

On the question regarding the convexity bonds should.

Should we think about the repurchases is kind of a one off opportunity that you took advantage of or do you believe this is something you could repeat going forward.

It's definitely first of all thanks for the comment.

On the quarter.

It's definitely something we could repeat our shares traded down.

During the quarter, we saw that opportunity.

We intend to be opportunistic as well just as we believe we were on the asset purchase this quarter. So.

I'm not going to say that you should consider this to be a quarterly event, but if we believe it presents good value.

And the best value for our shareholders capital then you could see us acting again.

I know that we were willing to do so and we're able to do so and I think that speaks to how we might act in the future.

Thanks for the color that's all for me. Thank you for taking my question, yes. Thanks.

<unk>.

And I'm showing no further questions I would now like to hand, the call back to Gary Vogel for closing remarks.

Great. Thank you operator, we don't have anything further so I'd like to thank everyone for taking the time today to be with us and wish everyone. A good day and a good weekend.

This concludes today's conference. Thank you for participating you may now disconnect.

Q3 2022 Eagle Bulk Shipping Inc Earnings Call

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