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Eagle Bulk Shipping Inc.: Highest outperformance to date and scrubber initiative well underway

Eagle Bulk Shipping Inc., one of the world’s largest owner-operators within the Supramax / Ultramax segment reported financial results for the three months ended March 31, 2019.

Highlights for the Quarter:

Generated net revenues of $77.4 million, representing a decrease of $2.0 million or 2% compared to the same period in 2018.
– TCE Revenue (1) for the quarter equated to $40.0 million, a decrease of 14% year-on-year.
– Achieved a TCE (2) of $9,607 for the quarter, a decrease of 13% year-on-year.
Realized a net income of $29 thousand or $0.00 per basic and diluted share, compared to a net income of $53 thousand or $0.00 per basic and diluted share in the first quarter 2018.
– Net income excluding loss on debt extinguishment of $2.3 million or $0.03 per basic and diluted share.
Adjusted EBITDA(3) of $15.4 million, representing a decrease of $3.5 million or 18% compared to the same period in 2018.
Looking ahead into the second quarter of 2019, the Company has attained a TCE of $9,509 with approximately 65% of the available days fixed for the period thus far.

Gary Vogel, Eagle Bulk’s CEO, commented, “Notwithstanding weakness in freight markets during the first quarter, we were able to achieve our highest TCE outperformance to date. I am pleased to report that our first quarter TCE outperformance, relative to the adjusted benchmark Baltic Supramax Index equated to almost $2,400 per vessel per day, representing a beat of over 30%. With nine consecutive quarters of outperformance, we continue to demonstrate our ability to create value through the execution of our differentiated business model.

“With respect to our fleet, preparations for IMO 2020 are well underway. To date we have fitted five vessels with scrubbers, with the majority of the installation time occurring at sea while ships continue to trade. We expect to have thirty-four scrubbers installed within 2019, and three additional units in 2020.”

Results of Operations for the three months ended March 31, 2019 and 2018

For the three months ended March 31, 2019, the Company reported net income of $29 thousand, or basic and diluted income of $0.00 per share. In the comparable quarter of 2018, the Company reported net income of $53 thousand, or basic and diluted income of $0.00 per share.

Net time and voyage charter revenues

Net time and voyage charter revenues for the three months ended March 31, 2019 were $77.4 million compared with $79.4 million recorded in the comparable quarter in 2018. The decrease in revenue was primarily attributable to the decline in the dry bulk market resulting in lower charter rates and a decrease in available days due to lower ownership days in the current quarter resulting from the sale of two vessels, Condor and Merlin. Additionally, the Company purchased one vessel in the current quarter as well as in the comparable quarter in 2018.

Voyage expenses

Voyage expenses for the three months ended March 31, 2019 were $25.9 million compared to $22.5 million in the comparable quarter in 2018. The increase was mainly attributable to an increase in bunker prices year over year.

Vessel expenses

Vessel expenses for the three months ended March 31, 2019 were $20.1 million compared to $21.1 million in the comparable quarter in 2018. The decrease in vessel expenses was attributable to a decrease in owned days after the sale of the vessels, Condor and Merlin in the current quarter compared to the comparable period in the prior year. The ownership days for the three months ended March 31, 2019 and 2018 were 4,160 and 4,312, respectively.

Average daily vessel operating expenses for our fleet for the three months ended March 31, 2019 and 2018 were $4,830 and $4,888, respectively.

Charter hire expenses

Charter hire expenses for the three months ended March 31, 2019 were $11.5 million compared to $10.3 million in the comparable quarter in 2018. The increase in charter hire expenses was principally due to an increase in the number of chartered in vessels on a short-term basis as well as the increase in the average charter hire expense per day. The total chartered in days for the three months ended March 31, 2019 were 1,036 compared to 944 for the comparable quarter in the prior year. The Company currently charters-in three Ultramax vessels on long term basis with lease terms ranging from one to three years.

Depreciation and amortization

Depreciation and amortization expense for the three months ended March 31, 2019 and 2018 was $9.4 million and $9.3 million, respectively. Total depreciation and amortization expense for the three months ended March 31, 2019 includes $8.2 million of vessel and other fixed asset depreciation and $1.2 million relating to the amortization of deferred drydocking costs. Comparable amounts for the three months ended March 31, 2018 were $8.1 million of vessel and other fixed asset depreciation and $1.2 million of amortization of deferred drydocking costs.

General and administrative expenses

General and administrative expenses for the three months ended March 31, 2019 and 2018 were $8.4 million and $9.9 million, respectively. General and administrative expenses included stock-based compensation of $1.4 million and $3.5 million for the three months ended March 31, 2019 and 2018, respectively. The decrease in the general and administrative expenses was mainly due to a decrease in stock-based compensation expense.

Interest expense

Interest expense for the three months ended March 31, 2019 and 2018 was $6.8 million and $6.3 million, respectively. The increase in interest expense is primarily due to an increase in our outstanding debt as a result of the purchase of two new Ultramax vessels since the first quarter of 2018.

Loss on debt extinguishment

On January 25, 2019, the Company repaid the outstanding debt together with accrued interest as on that date under the New First Lien Facility and Original Ultraco Debt Facility and discharged the debt in full from the proceeds of the New Ultraco Debt Facility. The Company accounted for the above transaction as a debt extinguishment. As a result, the Company recognized $2.3 million representing the outstanding balance of debt issuance costs as a loss on debt extinguishment in the Condensed Consolidated Statement of Operations for the three months ended March 31, 2019.

Liquidity and Capital Resources

Net cash provided by operating activities for the three months ended March 31, 2019 was $11.9 million, compared with $14.9 million in the comparable period in 2018. The cash flows from operating activities decreased over the prior year primarily due to a decrease in the charter hire rates achieved by the Company in the current year as well as an increase in drydocking costs.

Net cash used in investing activities for the three months ended March 31, 2019 was $16.9 million, compared to $15.3 million in the comparable period in the prior year. The Company purchased one Ultramax vessel for $20.4 million, out of which $2.0 million was paid as an advance as of December 31, 2018 offset by the proceeds from the sale of two vessels for $12.8 million. Additionally, the Company paid $11.2 million for the purchase and installation of scrubbers and ballast water treatment systems on our fleet. During the first quarter of 2018, the Company purchased one Ultramax vessel for $19.8 million and redeemed a short-term certificate of deposit amounting to $4.5 million.

Net cash provided by financing activities for the three months ended March 31, 2019 was $6.8 million compared with $2.1 million in the comparable three month period in 2018. On January 25, 2019, the Company completed a debt refinancing transaction by entering into new term and revolver loan facilities under the New Ultraco Debt Facility of up to $208.4 million and repaid all outstanding debt under the Original Ultraco Debt Facility and New First Lien Facility of $82.6 million and $65.0 million respectively. The Company paid $3.2 million as debt issuance costs to the lenders. Additionally, the Company paid $0.9 million towards shares withheld for taxes due to the vesting of restricted shares. For the three months ended March 31, 2018, the Company drew down $8.6 million under the Original Ultraco Debt Facility in connection with the purchase of one Ultramax vessel, offset by repayment of $5.0 million of the revolver loan under the New First Lien Facility. The Company paid $1.2 million of debt issuance costs on the debt facilities and $0.3 million towards shares withheld for taxes due to vesting of restricted shares.

As of March 31, 2019, our cash and cash equivalents balance including restricted cash was $80.0 million compared to a cash, cash equivalents, and restricted cash balance of $78.2 million as of December 31, 2018.

As of March 31, 2019, the total availability under the New Ultraco Debt Facility revolving credit facility is $55.0 million and $15.0 million under the Super Senior Facility.

As of March 31, 2019, the Company’s outstanding debt consisted of the $196.0 million Norwegian Bond and the $153.4 million New Ultraco Debt Facility.

Capital Expenditures and Drydocking

Our capital expenditures relate to the purchase of vessels and capital improvements to our vessels, which are expected to enhance the revenue earning capabilities and safety of the vessels.

In addition to acquisitions that we may undertake in future periods, the Company’s other major capital expenditures include funding the Company’s program of regularly scheduled drydocking necessary to comply with international shipping standards and environmental laws and regulations. Although the Company has some flexibility regarding the timing of its drydocking, the costs are relatively predictable. Management anticipates that vessels are to be drydocked every two and a half years for vessels older than 15 years and five years for vessels younger than 15 years. Funding of these requirements is anticipated to be met with cash from operations. We anticipate that this process of recertification will require us to reposition these vessels from a discharge port to shipyard facilities, which will reduce our available days and operating days during that period.

Drydocking costs incurred are deferred and amortized to expense on a straight-line basis over the period through the date of the next scheduled drydocking for those vessels. In the three months ended March 31, 2019, three of our vessels completed drydock and one vessel is in drydock as of March 31, 2019 and we incurred $2.5 million in drydocking related costs. In the three months ended March 31, 2018, two vessels were drydocked and we incurred $1.1 million in drydocking related costs.

Full Report

Source: Eagle Bulk Shipping Inc.

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