Eagle Bulk Shipping Inc.

Good day and thank you for standing by. Welcome to the Eagle Bulk Shipping fourth quarter 2022 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. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1 1 again. 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, Chief Executive Officer. Please go ahead.

Thank you, and good morning. I'd like to welcome everyone to Eagle Bulk's fourth quarter 2022 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 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. We cemented a record annual profit in 2022, achieving net income of $248 million, or $19.09 per share basic. These extraordinary results are reflective of the many actions we've taken over the past years, including our vessel sale and purchase strategy, encompassing 55 transactions, our segment-leading focus on scrubbers, our differentiated active management approach to trading ships, and our efforts to optimize the balance sheets. For Q4, revenues and earnings came off versus the prior quarter as freight rates continued to weaken through the end of the year, and costs came in higher due to expenses relating to recent vessel purchase activity, general inflationary pressures, and certain year-end non-cash impacts. Net income totaled $23.3 million for the fourth quarter, or $1.79 per share basic. Adjusting for non-cash mark-to-market changes on our FFA hedges and other non-cash items, net income came in at $35.9 million, or $2.76 per share. As we've stated previously, we believe that adjusted net income more accurately reflects the underlying business in any given period. Based on this result and consistent with our stated capital allocation strategy, Eagles Board of Directors declared a cash dividend of $0.60 per share, equating to 34% of net income. This is our sixth consecutive quarterly dividend, bringing total shareholder distributions to $139 million, or $10.65 per share, since we adopted our capital allocation strategy just 18 months ago. On the sale and purchase front, we continue to act opportunistically and recently acquired three high specification vessels. We purchased the 2015 built Ultramax for $24.3 million. The vessel has been renamed the Gibraltar Eagle and was delivered into our fleet in February. Yesterday, we also announced the acquisition of two 2020 built scrubber fitted Ultramaxes for $30.1 million each. Both ships are expected to be delivered to Eagle during the second quarter and will be renamed the Halifax Eagle and the Vancouver Eagle. Lastly, we sold the Jaeger, a 2004-built Supermax, which was the oldest vessel in our fleet, just ahead of our statutory dry dock. This transaction is expected to close in March. It's noteworthy that the Jaeger represents the 22nd and last vessel to be sold as part of our initial fleet renewal program, which began almost six years ago. Performer for these transactions are fleet totals 55 ships averaging 9.1 years of age, with more than 90% being scrubber fitted, and importantly, now with no vessel exceeding 14 years of age. Please turn to slide seven. For Q4, we achieved a net TCE of $22,062, which represents a decrease of 21% quarter-on-quarter on a headline basis, but a meaningful increase in relative outperformance versus the benchmark BSI index, equating to roughly 53%, or $7,689 per shift per day. For the full year 2022, we achieved a net TC of $26,923, a company record which represents a significant outperformance of 27% relative to the BSI index. As we look to the first quarter, spot rates weakened considerably during January and into mid-February. We will discuss market fundamentals later on the call. But as of today, we have fixed approximately 92% of our owned available days for the first quarter at a net TCE of $13,335. Please turn to slide eight. Adjusted EBITDA was down for the quarter, coming in at 55.6 million after adjusting for unrealized P&L impact on our hedges and certain other non-cash items. For the full year 2022, we achieved a record 328 million in total EBITDA. Before we move to the financials, as most of you know, Frank will be stepping down at the end of March. So before I turn the call over to him, I wanted to take a moment and thank him for his leadership as Eagle CFO. Frank has been instrumental in Eagle's development over the past six years and wish him well and all the best in his next chapter and his future endeavors. Frank?

Thank you, Gary. Please turn to slide 10 for a summary of our fourth quarter financial results. PCE revenues totaled 102.5 million in Q4 versus 128.9 million in Q3. The decrease was mainly due to lower market rates offset in part by an increase in available days. Net income for Q4 was 23.3 million. Earnings per share for the fourth quarter was $1.79 on a basic basis. On a diluted basis, which primarily includes the shares related to the convertible bond, EPS came in at $1.50. Adjusted net income, which excludes unrealized gains and losses on derivatives and an operating lease impairment, was $35.9 million for the fourth quarter, or $2.76 on a per share basis. On a diluted basis, our adjusted EPS came in at $2.28 for the quarter. Adjusted EBITDA for the fourth quarter was $55.6 million. Let's now turn to slide 11 for an overview of our balance sheet and liquidity. Total cash at the end of Q4 was $189.8 million, a decrease of $7.9 million as compared to Q3 22. The decrease was primarily driven by $23.4 million in dividends paid, $23.4 million paid for the purchase of the Tokyo Eagle, $3.6 million deposit for the purchase of the Gibraltar Eagle, and a $12.4 million quarterly amortization payment on the Global Ultracode Debt Facility, offset in part by $55.8 million of cash generated by operating activities. Total liquidity came in at $289.8 million at the end of Q4. Total liquidity is comprised of total cash of $189.8 million and $100 million available under our fully undrawn revolving credit facility. In addition to this available liquidity, we owned four unencumbered vessels at year end, providing us with additional flexibility to increase our liquidity. In Q1, we took delivery of the Gibraltar Eagle, our fifth unencumbered vessel. Furthermore, we intend to use cash on hand to pay for the Vancouver Eagle, which will provide us with a sixth unencumbered vessel once it is delivered to us in the second quarter. Total debt at the end of Q4 was $341.9 million, a reduction of $12.4 million from Q3, attributable to the Global Ultracode Debt Facility quarterly amortization payment. As a reminder, 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 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 12 for an overview of our cash flow from operations for the fourth quarter of 2022. Net cash generated by operating activities was 55.8 million in Q4 and 298.3 million for the full year 2022. Our working capital management remains robust. 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 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 turn to slide 13 for a Q4 2022 cash walk. The chart at the top of slide 13 lays out the company's cash movements during Q4. The revenue and operating expenditures bars provide a simple look at the company's operations. The net of these two bars, which total 55 million, roughly equals our adjusted EBITDA for the quarter. Some of the larger movements to the right include vessel S&P, dividends paid, and debt service. The chart at the bottom of the slide similarly covers the full year cash movements. Let's now review slide 14 for our cash breakeven per ship per day. Cash breakeven per ship per day was $12,078 for the fourth quarter. A quarter-on-quarter increase of $147 is due to higher OPEX and G&A, offset in part by lower dry docking and interest expense. Vessel operating expenses, or OPEX, exclude non-reincurring items, came in at $6,996 per ship per day in Q4, $430 higher than the prior quarter. OPEX overall was elevated due to a number of factors, including takeover costs and dry docking expenses relating to recently acquired vessels, which we run through the P&L versus capitalizing on the balance sheet. Additionally, we incurred an increase in repair costs driven by certain discretionary spend and unscheduled repairs. We also continue to face costs due to temporary housing we have been providing to our Ukrainian seafarers. expenses related to COVID-19, as well as general inflationary cost pressures. We believe OPEX will moderate in 2023, but we will incur incremental costs relating to takeover of newly acquired vessels as we continue to grow our fleet. Dry docking came in at $100 per ship per day in Q4, $403 lower than prior quarter on a decrease in dry docking activity. Cash G&A came in at $2,069 per shift per day in Q4, $368 higher than prior quarter. The change in G&A expense was primarily due to an increase in employee-related costs and professional fees. Note that our cash G&A per shift per day is based solely on our own vessels. If we were to include our chartered-in vessels, cash G&A would improve by $348 to $1,721 per ship per day. Cash interest expense came in at $339 per ship per day in Q4, $245 lower than prior quarter due to an increase in interest income and lower cash interest expense as a result of lower debt outstanding. It is important to note that the improved cash interest expense was achieved in an environment where short-term interest rates have remained at elevated levels. Cash debt principal payments were generally flat at $2,574 per shift per day in Q4. Looking ahead, we expect the following per shift per day in Q1 2023. OPEX is likely to decline to about $6,475. Dry dock is expected to increase to about $975 on higher dry dock activity. DNA is expected to decrease to $1,775. Cash interest expense is expected to come in unchanged at circa $340. Cash debt principal payments are expected to be marginally higher at $2,590. This concludes my comments. I will now turn the call back to Gary.

Thank you, Frank. Please turn to slide 16. Freight rates moved downward in the second half of 2022 and into early 23, with the BSI going from over 18,000 in October to slightly below 7,000 in mid-February. This weakness can be attributed to a number of factors which impacted both demand and supply. On the demand side, global growth and expectations for potential further deterioration and output curtail commodity purchase across the board with minor bolts such as steel and cement particularly impacted. Additionally, Chinese trade demand was muted in Q4 due to low domestic activity and more recently due to the usual negative seasonality which occurs up to and around Lunar New Year holidays. Although it's difficult to quantify, the container spillover trade, which was supportive since 2020, has mostly reversed with very few bags and container cargoes still moving on bulk carriers. On the supply side, the unwinding of congestion, which arose due to COVID-related restrictions and general supply chain issues, has effectively increased global ships' capacity and in turn pushed the world fleet utilization lower. Positively, since bottoming on Feb. 13, the BSI has posted a sharp and quick rebound and is now trading around $13,000, which represents an impressive increase of about 85% in just over two weeks. Furthermore, the forward curve for the balance of the year is in contango, with FFA trades being done at around $16,000. likely reflecting the market's expectations for an improved supply-demand landscape over the medium term as Chinese economic growth is revived and global demand stabilizes. Please turn to slide 17. Fuel prices were somewhat lower during the fourth quarter, but spreads between HSFO and BLSFO remain robust, averaging $241 for the period. Performer for our recent vessel sale and purchase activity, 50 out of 55 ships, or 91% of our fleet, is now fitted with scrubbers. This reinforces our position as the largest owner of scrubber-fitted ships within the midsize dry bulk vessel segment globally. On an illustrative basis, based on the 2023 forward curve, we estimate that our scrubbers will generate approximately $40 million in incremental net income on an annualized basis. Please turn to slide 18. Asset price development has been somewhat mixed in the first quarter, with values on mid-aged and older vessels softening a bit, while modern ships have moved up slightly. There appears to be an increasing level of buying interest for modern Ultramaxes, and it's coming not only from traditional dry bulk owners, but also from non-dry bulk, who are looking to diversify away from exposures in tankers and containers. The older segment tends to be dominated by Chinese buyers, and the softening of values is in part reflective of them not really being in the market during the second half of 2022. As mentioned previously, we've been fairly active on the sale and purchase front, having acquired four modern Ultramaxes since September, including three which are scrubber fitted at attractive levels that I believe reflects our disciplined approach to fleet growth. 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 increasingly positive supply-side dynamics. Please turn to slide 19. Net fleet supply growth slowed in Q4. A total of 112 dry bulk new build vessels were delivered during the period, partially offsetting that 19 vessels were scrapped during the same period. Notably for Eagle, just nine mid-sized geared vessels were scrapped during 2022. That's nine ships out of a fleet of over 4,000 mid-sized vessels. As we mentioned previously, despite high scrap prices, the low level of vessel demolition is not too surprising given the strength in the underlying spot market over the past two years. A positive from this is that there's an ever-increasing number of older ships that will inevitably need to be recycled in the coming years. In terms of forward supply growth, the overall dry bulk 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 estimated at 2.8%, which would be down about 22% as compared with 2021. Looking ahead, 2023 net fleet growth is projected to drop further to just 1.9%, driven by continued muted deliveries, as well as a significant increase in assumed scrapping volumes. A total of 74 dry bulk ships were ordered during Q4, up as compared to the prior quarter, but still significantly below the average over the last five years of roughly 113 ships per quarter. It's worth noting that the vast majority of ships being ordered today will only be delivered in 2025 and beyond. Please turn to slide 20. This slide, which we included in last quarter's presentation, depicts the average age of the Supermax Ultramax fleet going back 25 years, overlaid against the order book as a percentage of the on-the-water fleet. It's interesting to see how quickly the fleet has aged in recent years. it will most certainly outpace the historical peak of 12 years old reached in 1994. This not only reflects the lower number of new buildings entering the market, but also a smaller number of older ships that are being scrapped. As mentioned previously, the order book today remains at historically low level. Given the relative cost advantage of secondhand ships versus new buildings today, as well as the uncertainty surrounding decarbonization and future fuel propulsion technology, we believe ordering will remain low for some time. We expect these dynamics combining a record low order book with a near record fleet age to further improve the supply side in terms of fleet development in the coming years. Please turn to slide 21. After reaching a multi-year high in 2021, dry bulk trade demand growth is expected to have come in at negative 2.7% for full year 2022. However, after taking into account the significant and positive ton mile effect caused by the war in Ukraine, the deficit growth rate improves by 90 basis points. It's worth noting that 2022 is only the second time in over 20 years that dry bulk demand growth on a ton mile basis has been negative. The impact of demand last year is a direct result of a number of factors, including a 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 2.9%, a decrease of 70 basis points as compared to 2022. However, in terms of dry bulk trade, demand growth is expected to improve by 400 basis points in 2023 to reach a level of positive 1.3% on a core basis and improving to positive 2.2% once factoring in the ton-mile effect. Please turn to slide 22. As we look into 2023, there's a great deal of variability in forecasted growth rates amongst the various tribal commodities. Volumes for infrastructure-related commodities, such as steel and cement, are expected to come off based on current views of lower global economic activity. Coal, on the other hand, which typically represents anywhere from 15 to 20 percent of our cargoes, is expected to grow by 1.8 percent. We expect the impact of this figure to be even greater once factoring in the increased ton-mile effects to this particular commodity as a result primarily of Europe's changing energy mix. Additionally, grain, which typically represents anywhere from 10% to 15% of our cargo mix, projected to grow by 5.8 percent as grain production led by increased exports of brazilian soybeans u.s soybeans and corn and a partial normalization of ukraine wheat exports as compared with 2022. please turn to slide 23. our 2022 results demonstrate the advantages of our differentiated strategies Given our exclusive focus on the midsize segment, with an ability to carry all dry bulk commodities and a commercial platform with a track record of meaningful outperformance, we continue to be in an optimal position to maximize utilization and capitalize in a rapidly evolving environment. Looking forward, we remain positive about the medium-term prospects for the dry bulk industry, particularly given strong supply-side fundamentals. With a modern fleet of 55 predominantly scrubber-fitted vessels and roughly $290 million of liquidity at year-end, Eagle's in a unique leadership position. We're looking forward to continuing to deliver superior results for our stakeholders at large. With that, I'd like to turn the call over to the operator and answer any questions that you may have. Operator? Operator?

As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1 1 again. Please stand by while we compile the Q&A roster. Our first question comes from the line of Omar Nocta with Jefferies.

Thank you. Hey, guys. Good morning. Hi, Gary. Morning. Morning. Just wanted to just follow up maybe on your comments about the market here. Recently, you noted we've seen a sharp rise in the ball pick index, especially what we've been seeing in the supers and ultras. And rates now look like they're above the averages you've secured so far in the first quarter. So this obviously points to a nice end to the first quarter and a solid beginning to 2Q. I guess maybe could you just give us a sense of what's been driving this latest upturn here in the past couple of weeks? And so, you know, what's driving that? And then also, it seems that supers and ultras continue to outperform the larger ships. And maybe can you just explain why that outperformance is continuing? Okay.

Yeah, absolutely. So, I mean, as you mentioned, you know, it's up dramatically in just a little over two weeks. Really, we've seen the Atlantic market move up significantly. Definitely South Atlantic Brazil has come alive, and that's put pressure on even just yesterday, as an example, we fixed one of our One of our Ultramax is out of West Africa with manganese ore going out to China at $20,000, plus the scrubber benefit for the owner, which is around, call it $2,500 a day. And that's up probably $8,000, $10,000 from just a couple weeks ago. And that's really driven because there's a lot more activity out of Brazil, so that ship had an opportunity to ballast across. And we've seen the Gulf come back, too. know in terms of we lost a lot of grain volume out of the us and you know earlier because of uh water levels and so we we we see more activity there and that puts pressure and pull ships from from other parts of the atlantic and in the pacific as well on the other side of lunar new year we've definitely seen more activity so it's it's i'd say you know if you had a handicap it it's coming more more from the atlantic side but but in general overall which which is good and not and not surprising you know, given the seasonality that we see.

Okay. And that sounds like it's primarily coming from the minor bulks and grains. Is that what's been driving it here recently?

I mean, I think that's the difference overall, more than other cargoes. You know, I've actually, I've been, post-COVID, I've been getting out on our ships. And just in the last four weeks, I've been on three of our ships carrying salt to, you know, New York, Boston. area. And so, you know, those cargoes are much more steady. And so I'd say the difference we've seen recently is more grain cargoes moving out of the U.S. and now out of Brazil as that market comes on, typically with this season.

Thanks, Gary. Got it. And then maybe just one final question as a follow-up. You know, you mentioned the S&P market and what's been going on here recently. There's a bit more volume The two shifts you just bought that you announced yesterday, those look like they're off maybe 15% from where the peak was maybe nine months ago. So clearly a nice pricing relative. How would you characterize the market now? You mentioned there's more buyers. What do you think in terms of values from here? Do you see stability? Do you see upside? Any color you can give?

Sure. I mean, I think, you know, we think generally the modern ultra maxes that we've bought are slightly over 20% below where they were trading in the second quarter. And we've seen, we included a graph in the earnings deck that shows an increase in S&P prices recently. As I mentioned in my prepared remarks, we see buyers competing who typically are in dry bulk buyers. And a lot of people were saying, I want to come back into this market, but we're going to see values come off significantly Q1 because of the weak market. We didn't see that so much because So many people are reading the same tea leaves. We have a rapidly aging fleet. I mean, just in the last three years, we've got about six percent more ships over 20 years old in the midsize segment than we had, you know, just three years ago. I mean, that's a pretty significant amount, you know, 250 ships that are eventually scrapping candidates. And there's just not with an order book of, you know, in the mid sevens, there's just not new ships to come and fill that gap. So I just think that's why you're seeing much more resistance or downward momentum. movement in prices than we would have seen in a weaker market. I think most people just see the supply side dynamic. You know, I think, you know, this is my 35th year in dry bulk. I love the setup here in terms of where we are. And that's why that graph that we put in that shows that rapidly aging fleet against the order book. It's really remarkable. And I think a few years ago, I don't think I could have come up with a scenario where you would have a robust market. And because of that, you have an aging fleet. but you just don't have a supply-side response. The order book has really been flat since 2017 in the kind of 7% to 8%. And so we think asset prices will continue to move up. They move somewhat, but especially on the back of improved you know, pricing and the forward market. Sorry to go on here, but I think it's important. You know, the forward market for this year is now trading at around $16,000 in the FFA market. So, yeah, Q1 was weak, but $16,000 is a supermax. And then you have, if you add, you know, the majority of our fleet now is Ultramax. So those ships are at a premium. And then you add Scrubber premium to that and an active management, you know, which has an ability to outperform. And you quickly get back to a really significant, you know, numbers here. You know way well above you know way above cash break even but I'm saying significantly profitable level so we're we're really constructive here we like we like where we are and we specifically want exposure to this market I think if we look back you know last year in generating 250 million of net income. That's because we had exposure to this market. And, yeah, you know, that's going to mean there's going to be some volatility around a week or Q1. But, like I said, we like the exposure going forward and really like the four new ships we've added to the fleet.

Great. Oh, Gary, thanks. Very helpful and very thorough. I'll pass it over. Okay. Thanks, Omar.

Our next question comes from a line of Ben Nolan with Stifel.

Hey, guys. Good morning.

Morning, Ben.

I wanted to maybe just carry on where we left off or where you left off on Omar's question there just about how you're thinking about asset values. Obviously, you have been pretty active buying and sounds like you're still optimistic for the outlook for asset values, how do you bake that into your capital allocation strategy here? You know, you have had cash on the balance sheet, been able to acquire things really without debt, but debt's more expensive than it used to be. So if you, you know, continue to add, the cost of capital is higher. So at what point do you, you know, say, okay, well, or what's that, what's that,

sweet spot with respect to leverage maybe is a way to put it yeah i mean it's it's it's a great question because we're very cognizant of the fact that although you know, all of our debt is fixed. Our bank debt's all fixed at 87 basis points. That's not going to be the case with any new debt we put on, obviously, right? And so now you're looking at an all-in cost in the sixes with margin. And so it's meaningful on a standalone basis. Of course, blended, it's not. And we're very fortunate that we have those. But, you know, that's history. So we've been able to add chips, you know, with cash. And I think having unencumbered vessels is always a good thing. But if we continue, we are going to put some debt on. So on a blended basis, again, I think we're fortunate that we are able to have a very low cost of debt. But it's a different calculation than it was just a year, year and a half ago. So we're very cognizant of the fact that we want to be prudent with the balance sheet. There's a lot of work that went into this fleet renewal and balance sheet optimization over the last number of years, as mentioned in the remarks. The Jaeger is the last ship, 22nd ship, to be sold under that fleet renewal. And the good news now is, while for every two ships we've bought, we've had to sell one because of the age, And the specification over the last five, six years, we don't have any ships over 14 years old. So as we add these, you know, well, let's say these four ships, of course, we sold one. But new ships, I don't think you'll see us at the moment selling any more ships. So we don't feel, you know, the pressure to add more ships, but it's going to be opportunistic. In terms of leverage, you know, there's no set number at all. We feel it's really dynamic. You know, we ended the year with almost $190 million of cash and $100 million on drawn revolver. So we feel really good about that, but you're not going to see us lever up this company in the current environment because we just feel that the real value here comes from our operational leverage and not really from, you know, an inordinate amount of financial leverage.

Okay, that's helpful. And the – But just maybe to follow on with that, and then I have a quick macro question. So the convert is pretty well in the money. Do you view that just internally as equity given where it's at? And so it's not as meaningful from a leverage perspective. And then from the macro side, you talked, Gary, about the fact that you're not really seeing much of the container spillover trade anymore. It's effectively gone. As you think about sort of the trajectory for coming out of the recent trough that we've had, how big of a factor is that in sort of the momentum or the relative performance of the Ultra Supermax segment versus everything else?

Yeah, I mean, so I'll take the latter part first. I mean, I think It was helpful, but I don't think it's what drove it. I mean, I think what drove the outperformance of the supermax last year and 2021 is the fact that minor bulks grew at 4% and 4.7% respectively in 2020 and 2021. versus dry bulk overall or major bulk at averaging two over that period, so more than double. And that minor bulk doesn't include the container volumes as well. So it was helpful, absolutely, but I don't think it was the driver. I think it was the minor bulks outstripping major bulks, really two to one. You know, as we go forward, you know, the good thing about congestion is when it happens, it takes supply out of the market in a meaningful way. You know, the bad thing about congestion is it's never permanent. And so when it unwinds, you have exactly the opposite effect. So at the moment, you know, we've had that unwinding. And so, you know, we're now in a position where we don't see that as an overhang. And so but but, you know, it's inevitable whenever you see that, that it's going to come the other way at some point that the pendulum swings. So, you know, we think that although, you know, minor bolts, you know, fairly muted and mentioned, you know, it's really infrastructure related things like, you know, steel products and cement. were quite weak last year and expected to actually be slightly negative this year, you know, that can reverse and likely will reverse itself. You know, and we haven't really spent a lot of time speaking about opening of China. But of course, you know, China coming back online, which severely underperformed last year, is really meaningful for anyone in dry bulk, particularly for the larger sizes, of course, because of the dependence on iron ore and coal. But for any dry bulk ship, China is really important.

Great. And on how you started to convert? Yeah.

Yeah, sorry. Going back to the convert question. So I think generally speaking, I think that's correct, that we see the convert as equity given how deep in the money it is. We did buy back $10 million of face when our shares were trading significantly lower, just over $40. And we saw that as an opportunistic, almost kind of a proxy for a share buyback. You know, where we are today, though, is, you know, to the trades, the market trades were at with the future coupon as well and an implied option price. And we're just about a year away from maturity. And right now, you know, we're earning, you know, four and a half percent on cash in the bank. So the negative carry is only a half a percent on the convert. And to pay, you know, 5% coupon for the next year and effectively when we can, you know, stockpile cash and only pay a half percent just isn't good math to us where we are. So, you know, we do have, I mentioned before, but I think it's important, we do have the option to, you know, to pay for that using cash or shares. And so we think having cash on the balance sheet is opportunistic for that use or, of course, also for other strategic uses.

Cool. I appreciate it.

Thank you. Thanks, Ben.

Our next question comes from the line of Liam Burke with V. Riley.

Thank you. Good morning, Gary. Good morning, Frank. Good morning, Liam. Good morning. Gary, on the macro front, we're talking about puts and takes, especially on the coal and grain front, but how much of your outlook on the macro is dependent on the China reopening process?

Yeah, so I think the general view is we're going to have a reopening, and particularly the second half of the year will be more positive. But if you look at the numbers that we put forward in our deck, right, it doesn't show a rapid rebound. I mean, you know, cement was down, you know, 14% last year, and we're not putting in for for growth even against that number this year. So I think there's upside to a China reopening and infrastructure spend from where we are. But, you know, there's a lot, of course, a lot of uncertainty there. So we're not expecting, you know, overly... you know, immediate, you know, drive from that in the minor bulks. It really comes more next year when we see, you know, minor bulks growing at over 3%. And I do think it's worth pointing out that, you know, the ton-mile effect is really important. And it was really important last year. The uplift was almost 1% and is expected to be the same this year. And that's really around grain and coal. You know, moving significant amount of coal cargo from places like you know the u.s to europe even indonesia to europe which simply didn't exist uh you know previously so you know if we look at the cold front europe was up 30 year-over-year last year and then it's as expected to grow slightly so you know over that highly elevated number and so so those ton miles have been really important in supporting dry bulk in the second half of last year um and and and going into and including 2023 as well great and uh

Excuse me. On the OPEX front, Frank in his prepared statement said you'd expect it to moderate and come in in 2023. Is there anything you can do actively except eliminate some of the one-time events that occurred in the fourth quarter?

Yeah, I mean, we're very focused on bringing that number down. I've said it before. I think the most important thing for us to do is maintain our ships, you know, in a high state of commercial activity. ability to trade, of course, safety, compliance, things like that. And so we will spend what we need to spend. Having said that, the spend in Q4 is simply too elevated, even stripping out the expenses around acquisitions. And the way, from an accounting standpoint, we simply have to expense those costs, which are, I think, those are opportunistic and positive. But in terms of core OPEX, the answer is yes. We've also faced significant costs around the fact that the majority of our crew is from Eastern Europe, over a third from Ukraine. And so travel and flights have been very expensive. We have and continue to offer temporary housing to our Ukrainian seafarers, which is in that number as well. But we have diversified out and increased the number of seafarers from the Philippines, which is now almost a third, and that will help in the numbers too. So we're very focused on bringing that down. As Frank mentioned in the remarks, we expect a reduction of about $500 from Q4 to Q1, but very focused on bringing that down substantially further into and through the year. Great. Thank you, Gary. Thank you.

As a reminder, to ask a question, please press star 1 1. Our next question comes from the line of Greg Lewis with BTIG. Greg, your line is now open.

Oh, hey, thank you and good morning, everybody. And hey, Frank, thanks for, you know, good luck, congratulations, and thanks for all the years of helping me out and helping me better understand the industry. Gary. Greg, enjoyed working with you. Yeah, it was great. It was a good run. Gary, you know, and I feel like you've touched on it a few times in the prepared remarks as well as, you know, in some of the Q&A about, you know, hey, we've been renewing the fleet, but, you know, at this point we, you know, it looks like maybe there's one more sale candidate out there. You know, I guess... You know, as I look at ownership days in 22 versus 21, it was vessel ownership days. It was flattish. You know, as we look ahead to 23, and maybe it's more about timing, so maybe it's 24, should we be thinking about ownership days, total ownership days increasing as we think about the next, I don't know, at whatever time frame you want to think about? Or are we kind of, yeah, curious on your thoughts around that?

Sure. So, I mean, a couple of things. First of all, the Jaeger was the last vessel that we intended to sell under the renewal program. And our next oldest ship is only 14 years old. So we don't have another candidate. I mean, obviously. depending on market developments, that can change. But we're done under the initial fleet renewal. In terms of growth, our ownership days increased by just over 1,000 days from N21 to N22, from 18.2 to 19,200. And then you're going to see them increase now because of the The net three ships that we acquired take away the Jaeger, but the four ships less the Jaeger. Another three ships, so another 1,000 days. So I think it's been steady. We don't have a target number of ships because our view is that each acquisition needs to make sense on its own merits based on price and market expectation. So we are really constructive on the market because of the reasons I mentioned and the aging fleet. And we're operating in a market now with a forwards for this year at 16,000 in what's been a really muted. You know, we had negative demand growth last year of almost 3 percent and even including ton miles of almost 2 percent. And here we are in a market that where the FFA is trade for supermats at 16,000. So we're really constructive that when China comes back and global global demand comes back, you know, based on, you know, a reduction and a flattening of inflation and things like that, and hopefully a resolution of the war in Ukraine, that, you know, the demand side is going to be incredibly powerful against what's been, you know, really muted fleet and aging fleet. So I think you will see us continue to acquire vessels because of that positive view on the market. But we feel no pressure. And I don't use the word never often, but you'll never hear me say, you know, we're going to be X number of ships today. by the end of next year, because to me, I think that's putting the cart before the horse.

Yeah, but it does sound like a good time to be acquiring investors. But okay, thank you for that. And then I did just, you know, realizing we don't give dividend guidance, but I guess what I would say is, you know, yeah, Q1 season only week always is, rates are starting to get better, you know, based on the press release, the bookings, you know, are already over 90%. Any kind of way you can kind of talk to how we should be thinking about, or at least, you know, how you're going to be talking to the board around, you know, maybe near-term dividends, you know, just so that, you know, maybe expectations from investors are appropriately set in how they should be thinking about the dividend in the near term.

Sure. Sure, absolutely. I mean, I think I think our actions speak fairly loudly in that we've pretty much stuck to around 30%, a little above 30% of net income. Of course, the board has the discretion to do more, but our view is that wherever we allocate capital, it's for the benefit of the shareholder. So we think that by acquiring assets, This quarter has been a good use of capital. I mentioned also we think having cash on the balance sheet to have the option to redeem, if not all, a significant portion of the converting cash is a good use of capital and also gives us optionality, having that cash until maturity or some event where we decide to redeem them. So we don't feel pressure or we don't feel that we should be distributing excess incremental cash because it's sitting on the balance sheet because of, in particular, those two uses. You know, so, again, the board always has the ability to do that, but we've been clear about the fact that the dividend is variable at a minimum of 30%. So we'll have that discussion, but I don't want to set an expectation that it's going to be significantly more because we haven't had that discussion and our past actions, you know, haven't dictated that. And as I mentioned, we think acquiring vessels right now you know, is attractive at these levels.

Perfect. Okay. Hey, thank you all for the time and have a great rest of the day.

Thanks, Greg.

That concludes today's question and answer session. I'd like to turn the call back for closing remarks.

Thank you, Operator. I have nothing further. So, once again, we'd like to thank everyone for joining us today and wish everyone a good weekend.

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