Eagle Bulk Shipping Inc.

Greetings and welcome to the Eagle Bulk Shipping second 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. If you require operator assistance, please press star then zero. As a reminder, this conference call is being recorded. I would now like to turn the call over to Gary Vogel, Chief Executive Officer, and Frank DiCostanzo, 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's second quarter 2021 earnings call. To supplement our remarks today, I would encourage participants to access a slide presentation that is available on our website at eagleships.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 risk 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 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 reconciliation to the most comparable GAAP financial measures. Please now turn to slide five. The dry bulk market for the midsize segment continued to strengthen in the second quarter on the back of robust demand across the commodity spectrum. and especially for grain and infrastructure-related cargoes we carry, such as cement, manganese ore, and steel. The Baltic Supermax Index rose by almost 60% during the quarter to levels not seen in more than a decade. EGLE generated a net TCE for the second quarter of 21,580, the highest level in 11 years. Given the rapidly rising market environment we've been experiencing, there's an inherent lag effect between our TCE performance and the BSI as we have existing commitments on the books and the majority of our fleet is employed on voyages lasting up to about 60 days. The BSI is currently at its highest level of the year at around 33,000. Given our relatively short duration exposure and our active management approach to trading our ships, we continue to be successful at capturing the majority of the move up on a real-time basis. As of today, we fixed around 75% of our available days for the third quarter at a net TC of $28,300 per day. While we generally prefer to utilize FFAs as a means to hedge forward exposure due to the increased optionality it provides us with, we've elected to lock in some revenue in the form of time charters on a selective basis. As an example, earlier this week we fixed one of our 58,000 deadweight Supermax vessels for minimum 11 to 13 months at a rate of $27,250 per day commencing in October. Given the deferred delivery, this charter will extend at least until September of 2022. Please turn to slide six. In terms of operating performance, we achieved our best-ever quarterly result, producing $62.7 million in EBITDA for the three months ending June 30th. This represents an increase of 100 percent compared to the prior quarter, and As you can see from the chart, it's the fourth sequential quarter of significant EBITDA growth. Given the fixed cost nature of our business, essentially all of the incremental net revenue flows to the bottom line. We realized an adjusted net income of $40.3 million for the second quarter, up fourfold as compared to Q1. Please turn to slide seven. Asset prices have also continued to increase in recent months with values for 10-year-old super maxes up around 24% on the quarter and approximately 75% year to date. This represents the second highest percent six-month increase over the last 20 years, the first one being in early 2004 at the beginning of the 2000s dry bulk super cycle. It's also noteworthy that the increase in values is occurring against a record pace of transactions. Year to date, over 200 mid-sized dry bulk vessels have been bought and sold, implying an annual run rate of almost 400 ships. Notwithstanding the dramatic increase in asset prices over the past eight months, the chart on this slide would indicate there still remains significant potential upside. Spot rates are at an 11-year high, but asset prices remain well discounted to their levels in 2010 when charter rates were similar to today's levels. Assuming a return to 2010-type levels, we could see upside in secondhand values of a further 30 percent, which would, of course, translate to increased NAV for the company. Please turn to slide eight. On the acquisition front, as reported separately, we purchased two 2015-built scrubber-fitted Ultramaxes in the early part of the second quarter for total consideration of $44 million. To help fund these acquisitions, we issued equity under our ATM program, raising about $27 million at a weighted average of $47.97 per share. We currently intend to fund the remaining balance with cash on hand. In total, we've purchased nine ships since November. By our estimates, the first seven acquisitions are up in value by about 60%, while the value on the ships we purchased just 10 weeks ago are up by about 16%. Together, this represents a total increase in value of over $60 million. To date, we've taken delivery of six of the acquired vessels, with the remaining three expected to deliver between late August and mid-September. Separately, and as part of our ongoing fleet renewal, we executed an agreement to sell the Tern, a 2003-built Supermax, just ahead of her statutory dry dock and ballast water installation due date. Performer for pending S&P deliveries, our fleet now totals 53 ships, averaging 8.8 years of age, with 89% being fitted with scrubbers. With that, I'd like to turn the call over to Frank, who will review our financial performance.

Thank you, Gary. Please turn to slide 10 for a summary of our second quarter financial results. The significant improvement in the charter rate environment drove our top line in Q2, with revenue net of both voyage and charter hire expenses totaling 99.2 million, an increase of 61% from the prior quarter. Net income came in at 9.2 million for the second quarter. Earnings per share, or EPS, for the second quarter was 76 cents on a basic basis and 74 cents on a diluted basis. Beginning this quarter, we have added additional non-GAAP measures, adjusted net income and adjusted EPS, which exclude non-cash unrealized gains and losses on derivative instruments. As we have discussed, we charter in third-party ships as part of our active management strategy. Furthermore, we utilize forward freight agreements, or FFAs, to selectively hedge our exposure to the market for both owned and chartered-in tonnage. Although FFAs are a great tool to synthetically lock in cash flows, they do not qualify for hedge accounting. As such, all unrealized mark-to-market gains or losses on hedges for future periods impact current quarter results on a non-cash basis. However, the associated revenues for the SHIPs are only recognized in future periods thereby causing a timing mismatch between revenue recognition and gains losses on hedging instruments. We believe that the additional non-GAAP measures adjusted net income and adjusted EPS, which exclude the unrealized non-cash derivative gains and losses, will better reflect our operating performance and improve the comparability of the periods presented in the financial statements. Adjusted net income excluding non-cash unrealized gains and losses on derivatives of $31 million came in at $40.3 million for the second quarter. Adjusted basic EPS came in at $3.31 for the second quarter. Beginning this quarter and retroactively adjusted for prior periods, adjusted EBITDA also excludes non-cash unrealized gains and losses on derivative instruments. As with the above, we believe the change better reflects the operational cash flows generated within the respective reporting period. Adjusted EBITDA doubled in Q2, coming in at 62.7 million. Let's now turn to slide 11 for an overview of our balance sheet and liquidity. Total cash was 83.8 million at the end of Q2, representing an increase of 3 million as compared to the end of the first quarter and a decrease of 5 million from year end. The change in cash versus prior quarter in year end was driven by cash generated from our strong operating results, equity proceeds of 27.4 million from our ATM program, offset by vessel acquisitions and debt service. I will cover the movements in greater detail on the cash walk slide. Total liquidity improved by 20.1 million from the prior quarter to 139.8 million. Total liquidity is comprised of total cash of 83.8 million and 56 million of undrawn revolving credit facility. Please note that subsequent to the quarter end, we have repaid the remaining 25 million outstanding on the UltraCo revolver bringing our undrawn revolver availability to 81 million. As previously reported, we have funded the acquisition of one vessel with restricted cash. In addition, we have secured new deck facilities totaling 51.5 million for six of our newly acquired vessels. As of the date of this earnings call, we have taken delivery of five of these vessels and have drawn a total of 35 million. We have chosen to not complete the third drawdown on our Holdco RCF given our strong cash flows from operations. Total gross debt excluding debt issuance costs at the end of Q2 was $500.7 million, a decrease of $7.1 million from the prior quarter. The decrease is due to the $30 million we repaid on the UltraCo debt facility revolver, principal repayments of $8.1 million, on the Ultracode debt facility and $4 million on the Norwegian bond debt offset by the $24 million we drew from the Holdco RCF and the $11 million we drew from the Ultracode debt facility third incremental borrowing. Please now turn to slide 12 for an overview of our cash flow from operations for the second quarter. Net cash provided by operating activities was 16.3 million in Q2. 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. Although, as the chart demonstrates, the volatility caused by working capital largely evened out over time. The differences between the two bars this quarter can be explained by the timing of accounts receivables collections, as we received $7.5 million in early July. Please now turn to slide 13 for a Q2 2021 cash walk. Let's focus on the top chart, which covers the cash movements between Q1 and Q2. The revenue and operating expenditure bars are a simple look at the operations. Moving to the right, the $28 million bar representing the cash used in the quarter on margin and collateral on our derivative instruments. The $32 million bar for vessel S&P represents the acquisition of three vessels for $27.2 million plus deposits paid of $4.4 million for two vessels to be acquired in the third quarter of 2021. The chart at the bottom covers cash movements year to date. Let's now review slide 14 for our cash breakeven per ship per day. Cash breakeven per ship per day came in at $11,220 for the second quarter. Vessel expenses or OPEX, came in at $5,020 per ship per day in Q2, excluding one-time non-recurring expenses related to vessel acquisitions and sales. OPEX was negatively impacted by costs associated with the acquisition of three vessels during the quarter. In addition, we continue to face higher operating expenses related to the COVID-19 pandemic across a number of areas, including higher lodging and transportation costs related to crew changes and costs related to stores and spares. Dry docking came in at $357 per ship per day in Q2, $791 lower than prior quarter as we had fewer vessels dry docking than in Q1. It is worth noting that there are significant challenges regarding COVID protocols and quarantine requirements for ships going into facilities for dry docking in installation of ballast water systems and the like. We do not see this abating at the moment and is likely to increase off-hire times for these events. Cash G&A came in at $1,624 per ship per day in Q2, flat as compared to Q1. It is worth noting that our G&A per ship calculation is based on our own vessels, whereas we operate a larger fleet including are chartered-in tonnage. If we were to include the chartered-in days in our calculation, G&A per ship per day would decrease by about $161 to $1,463. Cash interest expense came in at $1,540 per ship per day due to, which was marginally lower quarter over quarter, driven by an increase in ownership days. Cash debt principal payments came in at $2,679 per ship per day in Q2, $819 higher than prior quarter. The increase is attributable to amortization repayments on our Norwegian bond debt, which are paid semiannually in Q2 and Q4. This concludes my comments. I will now turn the call back to Gary.