Eagle Bulk Shipping Inc.

Good day and thank you for standing by. Welcome to the Eagle Bulk Shipping second quarter earnings 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'll need to press star 1 1 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Gary Vogel, CEO of Eagle Bulk Shipping.

Thank you, and good morning, and our apologies for the technical difficulties. I'd like to welcome everyone to Eagle Bulk's second 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. Before we get into discussing the quarter, I'd like to take this opportunity to mention that our thoughts and prayers remain with all those affected by the war in Ukraine, including our Ukrainian seafarers who maintain their steadfast dedication and commitment to Eagle while being so far from their homeland and their loved ones. As we indicated on our last call, we've taken steps to provide extra support and assistance to them and to their families during this difficult time. From a market perspective, the wars disrupted typical trade patterns and altered demand as cargoes are being sourced from and sent to alternative regions, something we'll address later in the call. For Q2, we were able to capitalize on the market volatility and due to the efforts of our team, we're able to achieve our best ever quarterly results with net income coming in at $94.5 million or $7.27 per share basic. Adjusting for non-cash mark-to-market gains on derivative hedges, net income came in at $81.6 million, or $6.28 per share. As part of our ongoing fleet renewal strategy, we sold the motor vessel Cardinal, a 2004-built Supermax, and the oldest vessel in Eagle's fleet just ahead of our statutory dry dock. The transaction is expected to close later this month. Performer for this sale, our fleet totals 52 ships, averaging about 9.6 years of age, with 90% being fitted with scrubbers, which continues to offer Eagle a competitive advantage. Please turn to slide seven. Our record results, driven by our strong top line performance, generated a net TC of $30,207 per day. This represents an increase of 10% quarter-on-quarter and an outperformance against our benchmark index of approximately $2,500, or 9%. As we look forward to the third quarter, we fixed approximately 72% of our owned available days for the third quarter at a net TC of $29,024, indicating a significant outperformance against the BSI. Although we remain constructive on the market, we believe volatility will remain elevated in the near term. As such, We've taken a more conservative approach on coverage for the balance of the year and going into 2023. As you can denote from yesterday's press release, as of June 30th, we've sold BSI FFAs for the fourth quarter, totaling almost 40% of our owned available days at an average level of $22,322. It's worth noting that the FFA values I'm talking about are based on a non-scrubber fitted Supermax. We believe this approach is prudent given the current market volatility as well as varying macroeconomic forecasts. We also continue to charter out ships on a selective basis on a longer period as well. As an example, just last week we fixed a scrubber fitted Ultramax out for a minimum of 12 months starting in October at $25,000 gross TCE per day. This strategy utilizing both FFAs and ships has proven to be an effective part of our dynamic approach to fleet management. The fixed revenues derived from our FFAs and physical charters, combined with earnings from fuel spreads, help to provide surety of revenue streams and bodes well for strong TCE performance through the balance of the year. Please turn to slide eight. Given the inherent high operating leverage in our business, robust revenue in Q2 led to record operating performance with adjusted EBITDA coming in at $102.6 million after adjusting for the unrealized P&L impact of our hedges and certain other non-cash items included in GNA. Our trailing 12-month EBITDA run rate is now $370 million, implying a very modest EV EBITDA multiple of just 2.5. On the back of this significant cash generation, our financial profile continues to improve with net leverage estimating at around 18 percent. Please turn to slide nine. Asset price performance has been fantastic over the past 18 months, with 10-year-old Supermax vessels more than doubling in value. Given the significant elevation of values and a recent correction in spot rates, as well as the macroeconomic landscape, S&P activity has slowed down somewhat with prices plateauing. This notwithstanding, we remain constructive on the market with asset prices in the medium term, given the positive supply-demand dynamic, which we'll address later in the call. I would 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 second quarter financial results. PCE revenues totaled $138.2 million in Q2. The significant increase in market rates along with the increase in available days drove our top line growth versus prior quarter. Net income for Q2 was $94.5 million. Earnings per share for the second quarter was $7.27 on a basic basis. On a diluted basis, which includes shares related to the convertible bond, EBS came in at $5.77 for the quarter. Adjusted net income, which excludes non-cash unrealized gains and derivatives, came in at $81.6 million for the second quarter, or $6.28 on a basic basis. On a diluted basis, adjusted EBS came in at $4.98 for the quarter. Our adjusted EBITDA record result for Q2 is $102.6 million, 21% higher than prior quarter. Let's now please turn to slide 12 for an overview of our balance sheet and liquidity. Total cash at the end of Q2 was $141.5 million, an increase of $57.9 million as compared to Q1. The significant increase in the company's Q2 cash balance was driven by our strong operating results, offset in part by repayments of $12.5 million of debt vessel improvements, and a Q1 dividend. Total liquidity came in at $241.5 million at the end of Q2. Total liquidity is comprised of total cash of $141.5 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. In addition, the Cardinal is now classified as a vessel held for sale. We expect that vessel to be delivered to her new owner in August, generating approximately $15.5 million in cash. Total debt at the end of Q2 was $376.8 million, a decrease of $12.5 million as a result of the quarterly repayment of the Ultraco debt facility. We entered into interest rate swaps around the time of our global refi in early October 2021. to fix interest rate exposures 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 13 for an overview of our cash flows from operations. Net cash provided by operating activities was 98 million in Q2. The chart highlights the timing-driven variability that working capital introduces to cash from ops as depicted by the differences between the dark blue bars, which are reported cash from ops, 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 differences between the two bars in Q2 can be explained primarily by the increases in the value of receivables and inventories on both higher market values, market rate values, and bunker prices. Our receivable collection is outstanding as reflected in the company's robust cash generation and an overall strong cash conversion cycle. Please turn to slide 14 for a Q2 cash walk. The chart at the top of the slide lays out the increase in the company's cash balance during Q2. The revenue and operating expenditures bars are a simple look at the operations, with the net of these two bars coming in at $103 million, the same as our adjusted EBITDA results. The dividend and debt service bars, which can be found further to the right, explain most of the remaining Q2 activity. The chart at the bottom of the slide similarly covers the cumulative cash movements for the first two quarters of 2022. Let's now turn to slide 15 for our cash break-even per ship per day. Cash break-even per ship per day came in at $11,741 for the second quarter. The quarter-on-quarter decrease of $1,550 is due to lower vessel operating costs, dry docking, G&A, and interest expense. Vessel expenses, or OPEX, came in at $5,584 per ship per day in Q2, $237 lower than prior quarter. The decrease was primarily due to lower repairs and storage expenses. This notwithstanding, we continue to face COVID-related costs as well as general inflationary pressures. Dry docking came in at $1,104 per ship per day in Q2, $1,155 lower than prior quarter, as we completed dry docks for three vessels during the quarter. We have also made advanced payments in the quarter ahead of Q3 dry docks. Cash G&A came in at $1,718 per ship per day in Q2, down $78 from Q1. 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 our chartered-in tonnage. If we were to include the chartered-in days in our calculation, G&A per shift per day would improve by $329 to $1,389 for the quarter. Cash interest expense came in at $754 per shift per day in Q2, $51 lower than prior quarter as we realized an increase in interest income due to rising interest rates and our increasing cash balance. Cash debt principal payments came in at $2,581 per ship per day in Q2. Looking ahead, we expect the following per ship per day in Q3. OPEX should come in at around $5,750. Dry dock to decline to about $300 on significantly lower dry dock activity. GNA is expected to come in at circa $1,750. Again, it's worth noting the figure would be about $300 lower if we were to include chartered-in ships. Cash interest expense is expected to remain steady at circa $750. Cash debt amortization is expected to remain at $2,581 per ship per day. This concludes my comments. I will now turn the call back to Gary.