Eagle Bulk Shipping Inc.

Good day and welcome to Eagle Bulk's second quarter 2023 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. Instructions will be given at that time. As a reminder, this call is being recorded. I would like to turn the call over to Gary Vogel, CEO. You may begin.

Thank you and good morning. I'd like to welcome everyone to Eagle Bolt's second quarter 2023 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 TCE, TCE revenues, adjusted net income, EBITDA, and adjusted EBITDA. 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 reconciliation to the most comparable GAAP financial measures. Please turn to slide six. Today we'll start with a discussion of operations. Against the backdrop of a modest recovery in rates relative to first quarter averages, we generated net income of $18 million or $1.42 per share basic. Based on this result and consistent with our stated capital allocation strategy, EGLE's board of directors declared a cash dividend of 58 cents per share equal to 30% of net income. I'm pleased to report that we successfully concluded the transfer of crew management on 18 of our ships, resulting in a more balanced nationality makeup and improved crew sourcing opportunities, which support our ongoing efforts to offset challenges arising from geopolitical events, such as the Russia Ukraine war. This was a significant undertaking and one which we were able to complete with limited impact operations. On the vessel S&P front, we closed on the purchase and took delivery of two 2020-built scrubber-fitted Ultramaxes during the quarter. We also closed on the sale and delivered two of our mid-aged non-scrubber-fitted Supermaxes to the new owners. Additionally, and subsequent to quarter end, we closed on the sale and delivered a third mid-aged non-scrubber-fitted Supermax. As reported previously, the purchase and subsequent sale of these three vessels generated a levered IRR of roughly 70% over the past 24 months. As of today, we have no pending S&P activity, and our fleet totals 52 ships, 96% of which are scrub refitted. Lastly, from a balance sheet perspective, we executed an upsize and extension to our credit facility as previously disclosed. Costa will provide more detail on this later in the call. Please turn to slide seven. For Q2, we achieved a net TC of $14,434, representing an outperformance versus the benchmark BSI of roughly 35%, or $3,748 per ship per day. Although the BSI at the beginning of April was trading around 13,000, it declined significantly during the second quarter, falling to roughly $8,000 by the end of June. The weakness we saw in market freight rates during the quarter can primarily be attributed to lackluster demand growth out of China and a continued easing in congestion, which has effectively increased vessel supply into the market. As we look to the third quarter, spot rates remain weak with the BSI presently hovering around 8,000. As of today, we fixed approximately 67% of our own available days for Q3 at a net TC of 10,900. Before turning the call to Costa, I want to take a moment and briefly mention the transaction we announced in June, whereby we repurchased Oaktree's 3.8 million shares, which represented a 28% strategic shareholding position. Given we were able to conclude the transaction at a discount to NAV, and based on our constructive view of the medium-term fundamentals, we believe this deal will be highly accretive for our shareholders. With that, I would now like to turn the call over to Costa, who will discuss our second quarter financials.

Thank you, Gary. Please turn to slide 9. TCE revenues improved 10% on the quarter to total $64.9 million. This translates to a TCE of $14,434 based on 4502 owned available days for the period in line with our previous guidance. As mentioned earlier, Our cheap TCE represents a significant outperformance against the benchmark BSI index and continues to demonstrate the strength of our commercial platform. Vessel operating expenses improved roughly 1% quarter-on-quarter to a total of $31 million, or $64.51 per day, in line with our outlook. It's important to note that OpEx was impacted by a number of non-recurring items for the period, including startup and improvement costs on recently acquired vessels, costs related to the previously mentioned crew management transition, and discretionary upgrades on some vessels. Excluding these non-recurring items, adjusted outbacks equated to $58.82 per day, which is in line with our previous guidance. General and administrative expenses increased $300,000 in the quarter to total $11.3 million with cash G&A costs coming in flat at $9.1 million. We incurred a $700,000 mark-to-market adjustment on right-of-use assets, which related to one of our chartering chips. This non-cash charge was driven primarily by the weaker freight environment. During Q2, we closed on the sales of the Montauk Eagle and Newport Eagle, realizing a total gain on these sales of $11.6 million. As indicated earlier, Subsequent to the quarter end, we sold and delivered the Sanctity Eagle and expect to realize a gain on sale of $4.9 million in Q3. Net interest expense, inclusive of cash interest expense, cash interest income, and non-cash deferred financing fees came in at $2.6 million for the quarter, in line with our prior guidance. The unrealized net P&L and derivatives for Q2 was positive $2 million. This was primarily attributed to our outstanding FFA position as of June 30. Adjusted net income, which is net income adjusted for the unrealized P&L in derivatives and the non-cash mark-to-market adjustment on the right-of-use asset came in at $16.7 million or $1.31 per share basic and $1.13 per share diluted. Please note that the convertible bond was deemed to be dilutive this quarter from the EPS perspective and as such, the shares underlying the security were included in the diluted share count. Adjusted EBITDA amounted to $24.8 million. Please turn to slide 10. We ended the quarter with a total cash position of $118 million, down 37.5 as compared to March 31st. We generated 24.7 million from operations, used 23.7 million in investing activities, which was primarily comprised of $54.4 million spent on two vessel purchases, offset by $32.3 million received from two vessel sales. We used $38.6 million in financing, which is comprised of the following. $184 million in net debt proceeds received, $221 million spent on the share repurchase, inclusive of deal fees, and $1.4 million in total dividends paid. Please turn to slide 11. After taking into consideration the sale of the Sanctity Eagle, which took place in July, our pro forma June 30 liquidity position totals $195 million, inclusive of $60 million in undrawn RCF availability. Total debt outstanding as of quarter end was $517 million, comprised of the following. $104 million on the convertible bond face amount, $288 million on the term loan, and 125 million on the RCF. As reported previously, during Q2, we executed an upsize and extension of our credit facility, which provided for an increase of 175 million in total borrowing capacity, a reduction in margin, and an extension of maturity to September of 2028. The margin on our credit facility can now range between 2.05 and 2.75% based on leverage and certain sustainability criteria. Presently, our margin is at the lowest threshold of 2.05%. Inclusive of interest rate swaps we have in place, the all-in weighted average interest rate on our total debt position is approximately 5.25% today. For more information on our debt facilities, please reference the debt term summary slide in the appendix. Please turn to slide 12. As we look ahead into Q3, we're providing you with the following informational outlook. Owned available days is projected to be 4608 after taking into consideration S&P activity and estimates for both scheduled and unscheduled off-hire. As Gary indicated earlier, as of today, we have fixed approximately 67% of our owned available days at a TCE of 10,900. Please note that this figure is inclusive of our pro rata estimate for realized FFA gains and losses, the period on a mark-to-market basis. On the expense side, we are projecting the following on a per vessel per day basis. Vessel operating expenses are expected to improve further and normalize as we anticipate less impact from the non-recurring items. We estimate OPX to range between 5900 and 6200. And excluding non-recurring items, adjusted OPX is expected to come in between 5800 and 6100. Non-cash depreciation and amortization expense is projected to come in between $3,200 and $3,400. DNA cash expenses is forecasted to come in between $1,700 and $1,900. Non-cash stock-based compensation is estimated to come in between $300 and $400. Net interest expense is expected to come in between $1,600 and $1,900. As of June 30, we had 9.3 million basic shares outstanding and 12.9 million diluted shares outstanding after taking into account the shares underlying the convertible bond and unvested equity awards. This concludes my remarks. I will now turn the call back to Gary, who will discuss industry fundamentals.

Thank you, Costa. Please turn to slide 14. As indicated earlier, freight rates remain weak at the moment, with the BSI averaging approximately $8,142 for July, essentially on par with February levels. Notwithstanding the overhang on the macro environment, with rising interest rates and continued concerns of recession, we believe the weakness we've been experiencing with freight rates has been surprising. We believe the main drivers of this have been the weak demand growth recovery from China, and an increase in what we call effective supply as the normalization of trade routes and easing of congestion has continued to evolve. To illustrate the impact congestion has on effective supply, the decrease in a 50-day voyage of, say, five days in port, or 10%, translates to an equivalent reduction in utilization. As such, a marginal decrease in utilization can have a pronounced effect on rates. The opposite is, of course, true in a rising congestion environment. The forward curve for the balance of the year is in contango, with Q4 trading around $11,000, representing about a 40% premium to spot, and reflecting the market's continued belief for an improvement in the supply-demand dynamics and a recovery in rates. We believe trade activity will recover as we come out of summer and approach the end of the third quarter, and with congestion now back to pre-COVID levels and essentially fully unwound, we see rates pushing back up above the forward curve. Please turn to slide 15. Fuel prices were mixed during the second quarter, with HSFO rising by 9% on increased demand from the Middle East for use in power generation, as well as tighter HSFO supply as the EU was impacted by the ban on Russian crude and refined products. Fuel SFO, which tends to be highly correlated with crude oil, weakened by 6.5%. As a result, fuel spreads between HSFO and VSFO average roughly $118 per ton for the quarter. Given current supply-demand dynamics specific to HSFO, the forward curve is indicating flat fuel spreads for the balance of the year. As mentioned earlier, As a result of our recent sale and purchase activity, 50 out of 52 of our ships are now fitted with scrubbers, solidifying Eagle's position as the largest owner of scrubber-fitted ships within the midsize drybolt segment globally. Notwithstanding a contraction in fuel spreads on an illustrative basis based on 2023 year-to-date and the forward curve, we estimate our scrubbers will generate approximately $30 million in incremental net income on an annualized basis. This translates to an incremental net TC of approximately $1,600 per day, representing a meaningful contribution in today's freight market environment. Please turn to slide 16. Even though the freight market has been subdued, S&P activity within the Supermax Ultramax segment has been fairly robust and tracking at similar levels to last year. Buying interest has emerged primarily from traditional European-based ship owners who tend to have more of an asset trader approach to investing. SHIB values have been volatile but remain elevated and inherently imply that market participants believe freight rates will trend higher going forward. As indicated earlier, we've been active on both the buying and selling fronts recently. We'll continue to seek opportunities that will provide us with an opportunity to further optimize our fleet while also attempting to capitalize on market volatility. I believe we've demonstrated our ability to do this well over the years. And since 2016, we've executed a total of 58 sale and purchase transactions, turning over 52% of our fleet and generating incremental value for the enterprise and our shareholders. Please turn to slide 17. Net fleet supply growth slowed in Q2. A total of 119 dry-bill new-bill vessels were delivered during the period as compared with 127 in the prior quarter. New building deliveries in Q2 were partially offset by 24 vessels which were removed from the market and scrapped. Notably for Eagle, 11 midsize geared vessels were scrapped during the quarter. While still low, this represents a significant increase and compares to just nine midsize vessels scrapped during the entirety of 2022. As we mentioned previously, despite high scrap prices that averaged around $560 per ton thus far in 2023, The low level of vessel demolition is not surprising, given the strength in the underlying spot market during 2021 and 22 and the apparent shared sentiment by owners generally that rates will be strong going forward. terms of forward supply growth, the overall dry bulk order book remains at a historically low level of around 7.4% of the on the water fleet. For 2023, dry bulk net fleet growth is projected at 2.9%, at the same level as in 2022. The main driver of this low growth rate is a continuation of muted deliveries and is despite low levels of scrapping across all dry bulk segments. We also note that scrapping in 2023 was forecast to be as high as 30 million deadweight late last year, but the forecast has been continually revised downward, is now forecast at just 6 million deadweight. A total of 111 dry bulk ships were ordered during Q2 of 22 ships as compared to the prior quarter. It's worth noting that the vast majority of ships being ordered today will not be delivered until the second half of 2025 or 2026. Please turn to slide 18. Future supply dynamics continue to look very favorable. Based on delivery of current order book and expected scrapping levels, The midsize fleets expected to surpass the record average age of 12 years in 2024 and continuing increasing from there. A positive from this trend is that there's an ever-increasing number of significant older ships that will need to be recycled in the coming years. As we noted on the previous slide, the forecast for scrapping over the near term has been continually revised downward, which only increases the average age and adds to the pool of potential future scrapping candidates. It's worth noting that ships over 15 years of age need to dry dock every 30 months, which translates to meaningful and ever-increasing costs for ships as they age. Given limited yard capacity, relative cost advantage of second-hand ships versus new buildings, as well as uncertainty around decarbonization and future fuel propulsion technology, we believe ordering and the resultant order book will remain low for some time. We expect these dynamics, combining a near record low order book with near record fleet age, to further improve the supply side in terms of fleet development in the coming years. Please turn to slide 19. The IMF is currently projecting global GDP growth to reach 3% for 2023, up 20 basis points as compared to their previous forecast. The outlook for this year has improved modestly due to the resolution of the U.S. debt ceiling standoff attainment of financial sector turmoil in the U.S. and Switzerland in the first half of the year. At the global level, the outlook appears to be modestly improving as the economic shocks of the pandemic, supply chain disruptions, and Russia's invasion of Ukraine continue to recede. The IMF also notes that inflation is easing in most countries, although it remains high and will continue to be an area of focus. With central banks being at or close to the end of their tightening stage, notwithstanding continued uncertainty, I believe we're seeing an improvement in general confidence in the markets. In terms of dry bulk, total trade demand growth is expected to improve by 560 basis points in 2023 to reach a level of positive 2.7% on a core basis and improve further to positive 3.3% once factoring in ton-mile effect. Please turn to slide 20. Looking into the details of dry bulk demand on this slide, we note that 2023 forecast for most commodities has improved since our last earnings call. Iron ore demand growth has been revised upward by 60 basis points to 2.4%, primarily on an upward revision in Chinese demand of 9.5 million tons. Coal demand has been revised upward by 280 basis points to 5.7% growth for 2023, an increased demand from China for both thermal and coking coal. though offset somewhat by a reduction in estimated Indian demand for thermal coal. Demand for minor bolts is generally holding steady, with an upward revision of 50 basis points to 1.3% growth on an absolute basis for 2023, led by increases in trade demand for steel, forest products, fertilizer, and bauxite. In terms of grains, trade demand growth has been revised to 2.3% in 2023. While a significant year-over-year improvement, it's a downward revision of 80 basis points since our last earnings call. This is due in part to an 11% decrease in Ukraine exports for 2023 compared to the forecast on our last call, reflecting the expiration of the UN Black Sea grain deal after Russia withdrew its support. Overall demand has been challenged in recent quarters due to various reasons we've discussed. It's worth reiterating that dry bulk demand has grown on a ton-mile basis in 20 of the last 22 years, and we believe there's considerable upside to current growth forecasts when macroeconomic and geopolitical headwinds abate. Please turn to slide 21. 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 capitalize on 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 fully modern fleet of 52 predominantly scrubber-fitted vessels and approximately $195 million in total liquidity, Eagle is well-positioned to continue to take advantage of accretive opportunities. I'm looking forward to continuing to deliver superior results for all of our stakeholders. With that, I would like to turn the call over to the operator and answer any questions you may have. Operator?

Thank you. If you'd like to ask a question, please press star 1-1. If your question hasn't answered and you'd like to remove yourself in the queue, please press star 1-1 again. Our first question comes from Omar Nocta with Jefferies. Your line is open.

Thank you. Hi, Gary. Hi, Costa. Good morning. Morning. Hi. Yeah, thanks. Thanks for the update. Obviously, very detailed as usual. I did want to ask maybe just about your last point, Gary, as you were touching on your conclusion just about the liquidity post the Oak Tree buyback. Just big picture, how are you feeling about where Eagle liquidity stands today following the 220 you spent on the repurchase? Do you feel comfortable where it stands, especially kind of where rates have gone to here as it moves to the third quarter?

Yes. Well, the short answer is yes, we're comfortable. You know, we executed this just a month and a half ago. And our liquidity, as Costa, you know, pointed out, is almost $200 million at the end of the quarter. And also our leverage is in the low 30s, which is, you know, quite modest. And I think the important thing is we're very constructive on the market. You know, we're dead in the middle of summer here. Obviously, we talked about it. You know, China is has been slow out of the gate after the COVID lockdown. But we're seeing improvements across the board there. And the other thing is, we wanted to really highlight it and speak a little bit in detail about the level of congestion, because this impacts not just the voyages, but also ships are getting in and out of dry dock much quicker. If you think about it, the majority of ships are dry docked in China. And during the zero COVID policy, it was really difficult to get technicians in and out for dry docks. Ships were delayed for testing and things like that. That's all gone now. And so you have much more ships coming back into the market, that effective supply we talked about. That's now back. In other words, we don't see a further of that because we're back to kind of normal levels in terms of days in dry dock and things like that so we're very positive and and you so you overlay our positive constructive view of the market you know as we come out of summer uh in the third quarter on top of the fact that with the 200 million almost 200 million of liquidity we feel quite good got it thanks gary yeah that's helpful and good reminder that yes we are in the dead of summer um and and and just back maybe you know to the revolver revolver you've got 60 million um undrawn

Just, you know, what is the payback required, or how quickly does that 125 have to get repaid?

So, Omar, I'll take that. So, the RCF basically has a capacity reduction, a quarterly capacity reduction, which starts in September, roughly $5.4 million a quarter. But that's assuming it's fully drawn. So, we're not fully drawn. So, based on what we have drawn right now, which is 125, we wouldn't need to repay any of that until – about a year or so a year and a half actually oh i see okay interesting so you don't have to actually pay down just you don't pay down any of that principal um right until you get to that ratio up until the point it's up until the point where the rcf capacity reaches the rcf drawn amount that's when we start paying it down understood okay and and and i know listen i i

Clearly, the market, as Gary just pointed out, seasonally, we're in a tough spot, and typically things will pick up as we get to the fall. Just trying to think big picture, and also you highlighted the $200 million of liquidity. If worse gets to worse and we don't get a recovery and things start to go south, I was just wondering about the share buyback itself. Do you own those shares? Are those canceled or are those held in treasury? I'm just asking, just wondering, worst-case scenario, If you needed additional liquidity, are those shares that could be dribbled out or are those officially canceled?

Those shares were officially canceled. Oh, yeah. But, of course, we can always, you know, issue shares. We have plenty of capacity to do that.

Yeah, yeah. Thanks. Just out of curiosity, wanted to check on that. Well, good. Thank you. I'll pass it over. All right. Thank you.

Thank you. Our next question comes from Greg Lewis with BTIG. Your line is open.

Yeah, hey, thank you, and good morning, everybody, and thanks for taking my questions. Gary, I was looking for some high-level thoughts, realizing that your ongoing negotiations with the recent new shareholders, realizing you probably can't say that much about that. But I guess, you know, one thing I did want to ask is you mentioned around in your prepared remarks about, you know, following the recent deliveries that we have no pending transactions, either for buying or selling. Should we expect you to continue to be able to take advantage of opportunities in the market, whether that's buying or selling ships? over the next quarter, over the next few quarters as those opportunities present themselves?

So again, the short answer would be yes. I think we've demonstrated our focus on continuing to find opportunities and both on the buy and the sell side of S&P. The comment was really just because we've been so active and those deliveries do impact our OPEX. As we've talked about, when we take ships, we're not able to capitalize a lot of those costs. So we just wanted to kind of put a finer point or a point on the fact that it's now behind us. And so adjusted OPEX is going to be much closer to our overall OPEX number because of that. But in no way should you read it that we're not going to be looking at opportunities. Having said that, to Omar's point, we did use a considerable amount of cash on the share buyback. But that, in our minds, was a discount to NAV and therefore accretive on a NAV basis. And based on our view of the market, we think we'll be highly accretive you know, on an earnings basis as well. But in no way does that preclude us from looking at, you know, opportunities in the physical market as well.

No, absolutely. And I think sometimes buying your stock back is better than buying new ships. So, yes. The other thing I wanted to mention about is, you know, clearly, you know, whether it's the performance from the scrubbers, you know, you've continued to outperform the benchmarks And, you know, and for somebody like me where I'm sitting, you know, I think some of that over the over, you know, the last couple of years since you've really taken over has been taking advantage of creating synthetic time charters, i.e. buying call options. You know, I was curious and maybe I should already know this, but do you also take advantage by selling freight or are we more just using it to create synthetic charters? Just just trying to understand that nuance to your, you know, business.

Yeah, so if we talk about, you know, the derivatives, the FFA market, we don't go long on the FFA market by buying that. We will dynamically put hedges on and then buy them back. In other words, unwind them and then put them back on. But we never lead with expanding our exposure to the market using derivatives. And that's a hard line. You know, having said that, we do charter in vessels. And so when we're You know, when we want to expand our fleet and not through S&P, you know, chartering a ship in for a year or two or one option one is something that we do on a regular basis. But we don't do that with derivatives.

Okay. And then just, you know, I'll ask one more. Sorry about that. But as I think about the opportunities in the market right now, obviously freight rates are, you know, depressed. Are you seeing is the company seeing opportunities to kind of charter in ships short to take advantage of other opportunities? Or, you know, as we think about the chartered in portfolio, how is that looking? And do you see an opportunity to expand that ahead of, you know, what should arguably be a stronger finish to the year?

Yeah, absolutely. And in fact, literally within the last 24 hours, we just extended one of our long-term ships. It's a slightly, not complicated, but it has a share profitability standpoint in terms of the market. But for us, that's a high specification Ultramax, and we just extended it for a year with a further optional year. And again, we just did that within the last day. So no question, we continue to be constructive. You also see, if you look in our in the press release and also in the queue that, you know, we had a, you know, significant hedge position in FFAs for the third quarter and the fourth quarter, which we bought back almost all of it, right? We crystallized the gain on that with, again, and I think it points to the fact that it's not just, you know, our words that were constructive on this market. So we saw an opportunity based on the weakness to reverse those hedges on the ships and monetize if you will, lock in the gain on that. And then if the market were to go up, we might, you know, overlay and put those hedges back on. Okay, great.

Thank you for taking my questions. Have a great day. Thank you.

Thank you. Our next question comes from Liam Burke with B Raleigh Financial. Your line is open.

Thank you. Good morning, Gary. Good morning, Costa. Morning. Hi. Gary, have you... Do you consider looking at your older vessels and selling them into the market with asset values high and your stock trading at a discount 10 AB?

You know, we... we think we're constructive on this market right so we're looking at fleet renewal on the basis of of right sizing and and right aging if you will the the fleet and so what we've we've made a point of focusing on getting the average the the oldest ship down at the moment is less than 15 years old we have a couple ships coming up there based on on the market if the market's good enough we likely will monetize those and replace them with younger ships we've been able to keep the fleet age relatively uh stable over the last six seven years we're right at 10 years now and you know that's an ongoing process so but but the idea of selling you know a lot of ships because we're trading at a discount doesn't really factor in for us because again because you know, the share price is, you know, is volatile, and so we're looking at the assets more on what they can generate for the benefit of the enterprise, and then based on their age and what we can replace them with and where we are in the cycle.

Okay, thank you, Gary. Looking at the macro front, I mean, last year we had a lot of disruption, so year-over-year numbers are going to be lower anyway. You highlighted China as well as congestion relief, but we're looking at still a fairly tight supply, and we're looking at pretty steady demand if I look at the chart here. Is there anything else in there that's keeping rates abnormally low?

Again, I think to me the congestion is really important, and that's one of the reasons we spend time trying to highlight it. But if we look at the age of the fleet, right, we just have had just a lack of scrapping. And it's, you know, the average age scrapping for a midsize ship over my whole career has been pretty stable around 26 years, and now we're at 30. The ships are just not scrapping. And I think the reason is that many people are reading the same tea leaves, right, that the order book is low, that regulations are coming on, and therefore that this market is going to tighten. The negative of that is that these ships hang around. And so we just, if you look at the graph we have on fleet growth, In the deck, you'll see it's just we haven't had any real scrapping since 2015 and 2016. It's been six plus years of under recycling of ships. And I think that is a real big part of it. Having said that, and I've talked about this before, ships over 15 years, they need to go to dry dock every 30 months. Or another way of saying it, that part of the fleet, 40% of that part of the fleet needs to dry dock every year. And that's a meaningful decision. especially when you're in a weaker market like we are now. And that's why we also highlighted the fact that in the last quarter, although low, more ships in the mid-size segment, more ships scrapped last quarter than all of last year. Not enough, but the trend is positive. And, you know, especially given the weakness right now, I think we're going to continue to see more of those ships get recycled.

Great. Thank you, Gary.

Thank you.

Thank you. Our next question comes from Poe Fratt with Alliance Global Partners. Your line is open.

Good morning, Gary. Good morning, Costa. I appreciate all the detail on the macro and what's going on with whether it's China and everything else. Arguably, you know, you don't control that. So you're still a price taker at the end of the day. What you can control is your operating costs. And, you know, that's been a topic of discussion by, you know, your new major shareholder. Is there anything you think that you can do over the next 12 to 18 months to lower your costs? I know that Costa talked about normalizing costs, but anything on the efficiency front that you think you can do?

So, yes, the answer is yes. We are focused, and we've been addressing this. If you look on our last few earnings calls, we've talked about it. The transition of crew manager on these 18 ships we think is really meaningful, and we finalized the last ship on July 8th. So the lion's share by far, it was basically done in the second quarter with minimal disruption, but still there was a cost to that. And also I keep talking about it because I think it's important, right, that OPEX has been affected by the S&P activity when we buy ships, when we purchase lubes that don't get capitalized. That hits OPEX, things like that, that inventory on new ships and what have you. And that's now behind us. Having said that, we're also focused on other ways to bring down OPEX. We were hit pretty hard by freight costs for stores and spares over COVID-19. focusing on frame agreements and freight and things like that so the short answer is yes um i'm i'm pleased with our guidance on overall opex not even adjusted at 59 to 62 obviously we'll be you know pleased if we can bring that number in on the lower part of the range for q3 and so the trend is really positive there but there's definitely there's more work to be done and we've acknowledged that so You know, I think it's an area that we continue to see opportunities on, and we're putting the resources there, and we're seeing results from it.

Great. One specific area, Gary, was the digitization of, you know, the fleet info, the, you know, feedback loop that you get in, you know, whether it's real time or not. Is that an area where you're focused on?

Absolutely. We are highly focused on optimization across the company, particularly across voyage optimization. I mean, actually, one of the first things I did when I got to Eagle was establish a vessel performance function. And it's now a department, and it's led by John Dowsett, who was one of the first people to join me when I came here. And we've partnered with a number of technology companies in digitization and enhancing our models on routing and fuel consumption. Today, we're now partnered with a San Francisco-based company called SoFarOcean. They have a platform called Wayfinder, and it uses machine learning, training these models to improve on a regular basis. So we're absolutely engaged in this. It's an area we, I think, are leading in many of our peers, and we'll continue to do so because it's good for the environment, it's good for the bottom line, and it's something that we're, I think – You know, from an efficiency standpoint, you know, there's plenty more to come, you know, from, you know, making the most of the technology.

Great. That's very helpful. Thank you.

Thank you.

Thank you. If there are no further questions, I'd like to turn the call back over to Gary for any closing remarks.

Operator, thanks very much. We have nothing further, so I'd like to thank everyone for taking the time to join us today and wish everyone a good day and a good weekend.

Thank you for your participation. This does conclude the program, and you may now disconnect. Everyone, have a great day.