Eagle Bulk Shipping Inc.

Greetings and welcome to the Eagle Bulk Shipping first quarter 2022 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. To ask a question at this time, please press star, then 1. As a reminder, this conference is being recorded. I would now like to turn the conference over to Gary Vogel, Chief Executive Officer, and Frank DiCostanzo, Chief Financial Officer of Eagle Bulk Shipping, Mr. Vogel, you may begin.

Mr. Thank you, and good morning. I would like to welcome everyone to Eagle Bolt's first quarter 2022 earnings call. To supplement our remarks today, I would encourage participants to access the 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 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 reconciliation to the most comparable GAAP financial measures. Please turn to slide six. Over the past few months, the tragic situation in Ukraine has had a direct impact on our industry and our company, with cargo trading patterns being disrupted and altered. something I will address later in the call. Furthermore, a significant number of our seafarer colleagues are from Ukraine, and they are all affected by what is happening to their country and loved ones. The safety and wellbeing of our crew is of paramount importance, and we are focused on supporting them during this difficult time by providing assistance with temporary housing, transportation, and helping with other needs. Notwithstanding a volatile rate environment during the first quarter with the Baltic Supermax Index, or BSI, ranging from a low of about $17,000 to a high of over $33,000, Eagle generated net income of $53 million, or $4.09 per share. Adjusted net income, which strips out non-cash mark-to-market losses on derivative hedges, came in at $64.5 million, or $4.97 per share. We believe that adjusted net income per share is more useful to analysts and investors in comparing the results of operations. In line with our capital allocation objectives, I'm pleased to report that EGLE's Board of Directors has declared a first quarter cash dividend of $2 per share. This is the third consecutive quarterly dividend of at least $2 since announcing our dividend program last October. In total, we've declared over $6 per share in dividends in the last seven months. At the same time, our financial profile has improved further through cash generation and firming asset prices with net leverage now just around 25 percent. Please turn to slide seven. We outperformed our benchmark index in Q1, something we've consistently been able to do except in quarters when the market advances very rapidly. And we achieved a net TC of $27,407 for the quarter. This represents a meaningful delta of almost $3,800 against the net BSI, which averaged $23,611 for the quarter. Looking ahead into Q2, the market has rebounded nicely, and as of today, our index stands at around $30,000 per day, with futures pointing to continued strength through the balance of the year. It is noteworthy that now, more than four months into 2022, the BSI, which is based on a 58,000 deadweight ton ship, has significantly outpaced the Cape Index, notwithstanding the fact that a Supermax vessel costs approximately one-third less. It's this fact, combined with our business model, that has enabled Eagle to deliver superior financial results as compared to some other companies within our space who are operating larger ships. Illustrative of this continued strength, we've now fixed about 83% of our available days for the second quarter at a net TC of $29,300 per day. We're also continuing to see significant interest in tonnage for the balance of the year and even longer at elevated rates. As an example, just last week we fixed the Madison Eagle, one of our Ultramaxes, on a time charter at a strong rate of $32,500 per day for a duration of a minimum of 12 months. The ship is expected to be delivered to the charters in May, and as such, the contract takes that significant revenue stream of approximately $9 million of EBITDA well into the second quarter of 2023. These types of fixtures, combined with a BSI forward curve at around $30,000 per day for the balance of the year, points to continued momentum for Eagle in 2022. Given the fixed cost nature of our business, we maintain 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 almost $85 million of adjusted EBITDA in Q1 after accounting for unrealized P&L impact on our hedges and certain non-cash items included in our G&A. Our trailing 12-month run rate as well as our current quarter annualized EBITDA figure are both over $330 million, implying a modest EV EBITDA multiple of just around 3.6. Please turn to slide nine. On the back of almost 1,000 sale and purchase transactions in 2021, dry bulk asset values have continued to appreciate into 2022. and we estimate that the value of Eagle's 53-ship owned fleet has increased by about $550 million since January of last year, equating to $40 per share. We believe the substantial rise in secondhand values can be attributed to a number of factors we've previously highlighted, including improving confidence in forward markets, elevated new building prices, deferred delivery times for delivery of ships ordered, and the ever-increasing tail risk for new ships as it pertains to future emissions regulations. Given the positive supply-demand fundamentals and forward expectations, we believe there's further upside to values given where secondhand ships are priced relative to new buildings. With that, I'd now like to turn the call over to Frank, who will review our financial performance.

Thank you, Gary. Please turn to slide 11 for a summary of our first quarter financial results. TCE revenues totaled $121.6 million in Q1. The decrease in market rates from the record fourth quarter, along with fewer available days because of dry docks, has resulted in a decline versus prior quarter. It is also worth noting that we increased our chartered-in fleet by approximately 50% during the quarter, with the number of these ships taken for multiple legs with an initial investment to be recouped in subsequent quarters. As Gary noted, our commercial outperformance has resulted in a higher TCE as compared to the market in Q1, with our outperformance partially offsetting the factors which impacted TCE revenues. Net income for Q1 was $53.1 million. Earnings per share for the first quarter was $4.09 on a basic basis. Adjusted net income, which excludes non-cash unrealized losses on derivatives, came in at $64.5 million for the first quarter, or $4.97 per share on a basic basis. As Gary mentioned earlier, the adjusted EBITDA result for the first quarter was $85 million. Let's now turn to slide 12 for an overview of our balance sheet and liquidity. Total cash at the end of Q1 was $83.7 million. The company's Q1 cash balance was driven by our operating results offset by the repayment of $12.5 million of debt, vessel improvements, and a Q4 dividend payment of $26.8 million. I will cover this in greater detail when we turn to the cash walk slide. Total liquidity came in at 183.7 million at the end of Q1. Total liquidity is comprised of total cash of 83.7 million and 100 million of a fully undrawn revolving credit facility. It is important to note that we own four unencumbered vessels, which provide us with additional flexibility to increase our liquidity. Total debt at the end of Q1 was 389.2 million, a decrease of $12.5 million as a result of the quarterly repayment on the Ultracodet facility. As a reminder, we entered into interest rate swaps around the time of our global refi in early October to fix the interest rate exposure on the term loan. As a result of these swaps, which average 87 basis points, the company's interest rate exposure is fully fixed, insulating us from the rising interest rate environment. Please now turn to slide 13 for an overview of our cash flow from operations for the first quarter. Net cash provided by operating activities was 42.3 million in Q1. Aside from lower market rates, the quarter's cash flow from operations was impacted by the increase in bunker inventories, which was driven by both higher fuel prices and increased quantities due to the increase in chartered-in tonnage I mentioned earlier. The chart 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 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. The difference between the two bars this quarter can largely be explained by circa $10 million of cash collections in early April. Please turn to slide 14 for a Q1 cash walk. The chart lays out the changes in the company's cash balance in Q1. The revenue and operating expenditure bars are a simple look at the operations, with the debt of these two bars coming in at $85 million. the same as our adjusted EBITDA results. Moving to the right, the working capital bar is driven by the previously discussed timing of collections and an increase in inventories and higher bunker pricing and quantities. The Q4 dividend and the debt services bars are further to the right. Let's now review slide 15 for our cash breakeven per shift per day. Cash breakeven per shift per day came in at $13,291 for the first quarter. The quarter-on-quarter decrease is primarily due to decreases in vessel operating costs, G&A, and interest expense. Vessel expenses, or OPEX, came in at $5,821 per ship per day in Q1, $207 lower than prior quarter. The decrease was primarily due to lower repairs, stores, and spares expense Dry docking came in at $2,259 per ship per day in Q1, similar to prior quarter, as we completed dry dockings for four vessels during the quarter with an additional one in progress. We have also made advance payments in the quarter ahead of upcoming dry docks. Cash J&A came in at $1,796 per ship per day in Q1, down $339 from Q4 on lower one-time legal costs. It is worth noting that our G&A per ship calculation is based solely on our own vessels, whereas we operate a larger fleet which includes 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 $300 to $1,495 for the quarter. Cash interest expense came in at $805 per ship per day in Q1, $229 lower than prior quarter, as we realized significant interest expense savings from our global refi. Cash debt principal payments came in at $2,610 per ship per day in Q1, which was marginally higher due to a decrease in owned days. Looking ahead, we expect the following per ship per day in Q2. OPEX to decline to about $5,400. Dry dock to decline to about $800 on significantly lower dry dock activity. G&A is expected to come in at circa $1,750 in Q2. Again, it is worth noting that this figure would be approximately $1,465 if we were to include chartered-in chips. Cash interest expense. is expected to decrease to $765. Cash debt amortization is expected to marginally decrease to $2,581 on higher-owned days. This concludes my comments. I will now turn the call back to Gary.