Eagle Bulk Shipping Inc. (“Eagle” or the “Company”), one of the world’s largest owner-operators within the midsize drybulk vessel segment, reported financial results for the quarter ended March 31, 2023.
Quarter Highlights:
Generated Revenues, net of $105.2 million
Achieved TCE(1) of $12,917/day based on TCE Revenue(1) of $59.2 million
Realized net income of $3.2 million, or $0.25 per basic share
Adjusted net income(1) of $3.4 million, or $0.26 per basic share(1)
Generated Adjusted EBITDA(1) of $18.7 million
Executed agreements to acquire two high-specification 2020-built scrubber-fitted Ultramax bulkcarriers for $60.2 million, or $30.1 million each
Vessels are to be renamed Halifax Eagle and Vancouver Eagle and are expected to be delivered during the second quarter
Declared a quarterly dividend of $0.10 per share for the first quarter of 2023
Dividend is payable on May 25, 2023 to shareholders of record at the close of business on May 17, 2023
Recent Developments:
Executed agreements to sell three 2011-built non-core, non-scrubber-fitted Supramax bulkcarriers (Montauk Eagle, Newport Eagle and Sankaty Eagle) for $49.8 million, or $16.6 million each
Sale of the Newport Eagle closed on May 3, 2023, while the remaining two transactions are expected to close during the second quarter
Coverage position for the second quarter of 2023 is as follows:
65% of owned available days fixed at an average TCE of $16,030
Eagle's CEO Gary Vogel commented, “Against the industry backdrop of a seasonally weak market in the first quarter, we achieved a net TCE of $12,917 for the period, representing meaningful outperformance versus the benchmark BSI (Baltic Supramax Index). Based on recent developments and given our general view of market fundamentals for the balance of the year, we believe the first quarter will represent the bottom for freight rates in 2023.
On the vessel sale and purchase front, we continue to act opportunistically to create value for our stakeholders. Following our recent accretive acquisitions of four modern high-specification Ultramaxes, we have taken advantage of a recent increase in both S&P liquidity and ship values to sell three non-core, non-scrubber-fitted Supramax vessels, which were purchased opportunistically just two years ago. Based on our calculations, we generated a levered IRR of 70% on this S&P transaction, inclusive of cash generated.
Looking forward, we remain positive about the medium-term prospects for the drybulk industry, particularly given strong supply side fundamentals. With a fully modern fleet of 52, predominately scrubber-fitted vessels, and $235 million of liquidity, Eagle is in a unique leadership position to continue to take advantage of opportunities for the benefit of our shareholders.”
Fleet Development
Gibraltar Eagle, a 2015-built Ultramax (64k DWT), acquired in the fourth quarter of 2022 for total consideration of $24.3 million, was delivered to the Company in the first quarter of 2023
Halifax Eagle, a 2020-built, scrubber-fitted Ultramax (64k DWT), acquired in the first quarter of 2023 for total consideration of $30.1 million, is expected to be delivered to the Company in the second quarter of 2023
Vancouver Eagle, a 2020-built, scrubber-fitted Ultramax (64k DWT), acquired in the first quarter of 2023 for total consideration of $30.1 million, is expected to be delivered to the Company in the second quarter of 2023
Jaeger, a 2004-built Supramax (52k DWT), sold in the first quarter of 2023 for total consideration of $9.0 million, was delivered to the buyer in the first quarter of 2023
Montauk Eagle, Newport Eagle and Sankaty Eagle, each a 2011-built Supramax (58k DWT), sold in the second quarter of 2023 for total consideration of $49.8 million
Newport Eagle was delivered to the buyer in the second quarter of 2023 and the two remaining vessels are expected to be delivered to the buyer in the second quarter of 2023
Pro forma owned fleet totals 52 vessels with an average age of 9.8 years
Results of Operations for the three months ended March 31, 2023 and 2022
For the three months ended March 31, 2023, the Company reported net income of $3.2 million, or basic and diluted net income per share of $0.25 and $0.24, respectively. In the comparable quarter of 2022, the Company reported net income of $53.1 million, or basic and diluted net income per share of $4.09 and $3.27, respectively.
For the three months ended March 31, 2023, the Company reported adjusted net income of $3.4 million, which excludes net unrealized losses on FFAs and bunker swaps of $0.2 million, or basic and diluted adjusted net income per share of $0.26. In the comparable quarter of 2022, the Company reported adjusted net income of $64.5 million, which excludes net unrealized losses on FFAs and bunker swaps of $11.5 million, or basic and diluted adjusted net income per share of $4.97 and $3.97, respectively.
Revenues, net
Revenues, net for the three months ended March 31, 2023 were $105.2 million compared to $184.4 million for the comparable quarter in 2022. Revenues, net decreased $79.2 million primarily due to lower rates on both time and voyage charters, driven by a decline in the drybulk market.
Voyage expenses
Voyage expenses for the three months ended March 31, 2023 were $33.5 million compared to $43.6 million for the comparable quarter in 2022. Voyage expenses decreased $10.2 million primarily due to a $6.0 million reduction in port expenses and a $3.0 million decrease in bunker consumption expenses, each primarily driven by a decrease in voyage charters.
Vessel operating expenses
Vessel operating expenses for the three months ended March 31, 2023 were $31.3 million compared to $27.9 million for the comparable quarter in 2022. Vessel operating expenses increased $3.3 million as a result of higher ownership days and primarily due to a $2.2 million increase in crewing costs driven by higher crew compensation costs and a $0.8 million increase in stores and spares related to the timing of purchases.
Adjusted vessel operating expenses(1), which excludes one-time, non-recurring expenses related to vessel acquisitions, charges relating to a change in the crewing manager on some of the Company’s vessels and discretionary hull and hold upgrades for the three months ended March 31, 2023 were $30.8 million compared to $27.8 million for the comparable quarter in 2022. Adjusted vessel operating expenses increased $3.0 million primarily due to a $2.2 million increase in crewing costs driven by higher crew compensation costs and a $0.8 million increase in stores and spares driven by the timing of purchases. Average daily adjusted vessel operating expenses(1) (“Adjusted DVOE”) for the three months ended March 31, 2023 were $6,400 compared to $5,821 for the comparable quarter in 2022.
Charter hire expenses
Charter hire expenses for the three months ended March 31, 2023 were $12.4 million compared to $22.7 million for the comparable quarter in 2022. Charter hire expenses decreased $10.3 million primarily due to a decrease in charter hire rates related to a decline in the drybulk market.
Chartered-in days, which is the aggregate number of days in a period during which the Company chartered-in vessels, for the three months ended March 31, 2023 and 2022 were 944 and 960 days, respectively.
Depreciation and amortization
Depreciation and amortization for the three months ended March 31, 2023 was $14.7 million compared to $14.6 million for the comparable quarter in 2022. Depreciation and amortization increased $0.1 million primarily due to a $0.7 million increase in deferred drydocking cost amortization due to higher drydocking expenditures and a $0.3 million increase in depreciation driven by the net impact of vessels acquired and sold during the respective periods. This was partially offset by a $1.0 million decrease in depreciation due to a change in our estimated vessel scrap value from $300 per lwt to $400 per lwt, effective January 1, 2023.
General and administrative expenses
General and administrative expenses for the three months ended March 31, 2023 were $11.0 million compared to $10.1 million for the comparable quarter in 2022. Excluding stock-based compensation expense of $1.9 million and $1.5 million for the three months ended March 31, 2023 and 2022, respectively, general and administrative expenses for the three months ended March 31, 2023 were $9.1 million compared to $8.6 million for the comparable quarter in 2022. General and administrative expenses increased $0.9 million primarily due to a $0.4 million increase in stock-based compensation expense and a $0.2 million increase in professional fees.
Other operating expense
Other operating expense for the three months ended March 31, 2023 and 2022 was $0.1 million.
Gain on sale of vessel
For the three months ended March 31, 2023, the Company recorded a gain on the sale of the vessel Jaeger of $3.3 million.
Interest expense
Interest expense for the three months ended March 31, 2023 and 2022 was $3.9 million and $4.4 million, respectively. Interest expense decreased $0.6 million due to lower outstanding principal balances driven by principal repayments.
Interest income
Interest income for the three months ended March 31, 2023 and 2022 was $1.8 million and less than $0.1 million, respectively. Interest income increased primarily due to higher interest rates on the Company’s cash balances.
Realized and unrealized loss on derivative instruments, net
Realized and unrealized loss on derivative instruments, net for the three months ended March 31, 2023 was $0.4 million compared to $7.9 million for the comparable quarter in 2022. The realized and unrealized loss on derivative instruments, net decreased $7.5 million due to market movements as well as lower FFA and bunker swap activity.
Net cash provided by operating activities for the three months ended March 31, 2023 was $7.4 million, compared to $42.3 million for the three months ended March 31, 2022. The decrease is primarily due to a decrease in net income driven by lower freight rates, partially offset by changes in operating assets and liabilities driven by decreases in accounts receivable and inventories.
Net cash used in investing activities for the three months ended March 31, 2023 was $18.6 million, compared to $3.9 million for the three months ended March 31, 2022. During the three months ended March 31, 2023, the Company (i) paid $20.9 million to purchase one vessel and other vessel improvements, (ii) paid $6.0 million as advances on the purchase of two vessels and (iii) paid $0.2 million to purchase ballast water treatment systems (“BWTS”). These uses of cash were partially offset by $8.4 million in net proceeds from the sale of one vessel. During the three months ended March 31, 2022, the Company (i) paid $3.5 million to purchase BWTS, (ii) paid $0.3 million to purchase vessel improvements and (iii) paid $0.2 million to purchase other fixed assets.
Net cash used in financing activities for the three months ended March 31, 2023 was $22.7 million, compared to $40.9 million for the three months ended March 31, 2022. During the three months ended March 31, 2023, the Company (i) repaid $12.5 million of term loan under the Global Ultraco Debt Facility, (ii) paid $8.6 million in dividends and (iii) paid $1.7 million for taxes related to net share settlement of equity awards. During the three months ended March 31, 2022, the Company (i) paid $26.8 million in dividends, (ii) repaid $12.5 million of term loan under the Global Ultraco Debt Facility and (iii) paid $1.9 million for taxes related to net share settlement of equity awards. As it relates to amounts paid for taxes related to net share settlement of equity awards, the Company withholds a number of shares earned by employees with a value equal to amounts paid.
As of March 31, 2023, cash and cash equivalents including noncurrent restricted cash was $155.9 million compared to $189.8 million as of December 31, 2022.
The Company continuously evaluates potential transactions that it expects to be accretive to earnings, enhance shareholder value or are in the best interests of the Company, including without limitation, business combinations, the acquisition of vessels or related businesses, repayment or refinancing of existing debt, the issuance of new securities, share and debt repurchases or other transactions.
Capital Expenditures and Drydocking
Capital expenditures relate to the purchase of vessels and capital improvements to our vessels, which are expected to enhance their revenue earning capabilities, efficiency and/or safety and to comply with relevant regulations.
On January 30, 2023, the Company entered into a memorandum of agreement to acquire a high-specification 2020-built scrubber-fitted Ultramax bulkcarrier for total consideration of $30.1 million. The Company paid a deposit of $3.0 million on this vessel as of March 31, 2023. The vessel is expected to be delivered to the Company during the second quarter of 2023. The remaining consideration is due upon delivery of the vessel and the Company intends to fund this acquisition with cash on hand and/or amounts available under the Global Ultraco Debt Facility.
On February 28, 2023, the Company entered into a memorandum of agreement to acquire a high-specification 2020-built scrubber-fitted Ultramax bulkcarrier for total consideration of $30.1 million. The Company paid a deposit of $3.0 million on this vessel as of March 31, 2023. The vessel is expected to be delivered to the Company during the second quarter of 2023. The remaining consideration is due upon delivery of the vessel and the Company intends to fund this acquisition with cash on hand and/or amounts available under the Global Ultraco Debt Facility.
In addition to acquisitions that may be pursued in future periods, the Company’s other major capital expenditures include funding the Company’s program of regularly scheduled drydocking and vessel improvements necessary to comply with international shipping standards and environmental laws and regulations. Although the Company has some flexibility regarding the timing of its drydockings, the costs are relatively predictable. In accordance with statutory requirements, management anticipates that vessels are to be drydocked every five years for vessels less than 15 years and every two and a half years for vessels older than 15 years. Funding of drydocking costs is anticipated to be satisfied with cash from operations. Generally, drydocking requires us to reposition vessels from a discharge port to shipyard facilities, which will reduce our owned available 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. During the three months ended March 31, 2023, two of our vessels completed drydock and we incurred drydocking expenditures of $3.7 million. During the three months ended March 31, 2022, four of our vessels completed drydock and we incurred drydocking expenditures of $10.8 million.
