Eagle Bulk returns to black in first quarter

eagle

Eagle Bulk, one of the world’s largest owner-operators in the Supramax / Ultramax segment, today reported financial results for the three months ended March 31, 2018.

Highlights for the Quarter:

  • Generated net revenues of $79.4 million, representing an increase of 73% compared to the same period in 2017.
    • TCE Revenues (1) for the quarter equated to $46.6 million, an increase of 63% year-on-year.
    • Achieved a TCE (1) of $11,052 for the quarter, an increase of 41% year-on-year.
  • Realized a net income of $0.1 million or $0.00 per share, compared to a net loss of $11.1 million or $0.17 per share for the comparable quarter in 2017.
  • Generated operating cash flows of $14.9 million for the quarter.
  • Adjusted EBITDA(2) of $18.8 million, representing an increase of 314% compared to the first quarter of 2017.
  • Took delivery of the New London Eagle, a 2015-built CROWN-63 Ultramax, closed the sale of the Avocet, a 2010-built DIAMOND-53 Supramax, and signed a memorandum of agreement to sell the vessel Thrush for $10.9 million net of commissions and selling expenses.
  • Looking ahead into the second quarter of 2018, attained a TCE of $11,224 with approximately 70% of the days fixed for the period thus far.

Gary Vogel, Eagle Bulk’s CEO, commented, “We continued to execute on our active owner-operator strategy during the first quarter, achieving a TCE of $11,052 and outperforming the benchmark Baltic Supramax Index by over $1,100 per day. This represents the fifth consecutive quarter we have meaningfully outperformed the market, which I believe underscores the value of our unique business model and our team’s ability to execute.

With attractive supply/demand fundamentals in place, we expect the underlying dry bulk market to continue to improve. Against this backdrop, we believe the Company is well positioned to continue to generate strong cash flow with a proven business model, significant operational leverage and a healthy balance sheet.”

TCE revenue and TCE is a non-GAAP financial measure. See the reconciliation and table of revenues to TCE revenue later in this release for more information on non-GAAP financial measures.

2 Adjusted EBITDA is a non-GAAP financial measure. See the reconciliation and table of net income to EBITDA and Adjusted EBITDA later in this release for more information on non-GAAP financial measures.

Fleet Operating Data
Three Months
Ended
March 31, 2018 March 31, 2017
Ownership Days 4,312 3,686
Chartered in Days 944 514
Available Days 5,162 4,134
Operating Days 5,113 4,105
Fleet Utilization (%) 99.1 % 99.3 %

Results of Operations for the three months ended March 31, 2018 and 2017

For the three months ended March 31, 2018, the Company reported net income of $0.1 million, or basic and diluted earnings of $0.00 per share. In the comparable quarter of 2017, the Company reported a net loss of $11.1 million, or basic and diluted earnings of $0.17 per share.

We adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09” or “ASC 606”) as of January 1, 2018 utilizing the modified retrospective method of transition. The impact of adoption of ASC 606 was not material to our reported financial position or the results of operations for the three months ended March 31, 2018.

Net time and voyage charter revenues

Net time and voyage charter revenues for the three months ended March 31, 2018 were $79.4 million compared with $45.9 million recorded in the comparable quarter in 2017. The increase in revenue was primarily attributable to the improving dry bulk market resulting in higher charter rates as well as an increase in available days due to an increase in owned fleet and chartered in vessels.

Voyage expenses

Voyage expenses for the three months ended March 31, 2018 were $22.5 million compared to $13.4 million in the comparable quarter in 2017. The increase was mainly attributable to an increase in the number of freight voyages in the current quarter compared to the comparable quarter in the prior year as well as increased bunker prices year over year.

Vessel expenses

Vessel expenses for the three months ended March 31, 2018 were $21.1 million compared to $18.0 million in the comparable quarter in 2017. The increase in vessel expenses is attributable to the increase in the owned fleet after the acquisition of 11 Ultramax vessels during 2017 and first quarter of 2018 which was partially offset by vessel sales in 2017. The Company sold the vessel Redwing in the first quarter of 2017, the Sparrow in the second quarter of 2017, the Woodstar in the third quarter of 2017 and the Wren in the fourth quarter of 2017. The ownership days for the three months ended March 31, 2018 and March 31, 2017 were 4,312 and 3,686, respectively.

Average daily vessel operating expenses for our fleet for the three months ended March 31, 2018 and March 31, 2017 were $4,888 and $4,871, respectively.

Charter hire expenses

Charter hire expenses for the three months ended March 31, 2018 were $10.3 million compared to $3.9 million in the comparable quarter in 2017. The increase in charter hire expense was principally due to an increase in the number of chartered in vessels as we expand on our owner-operator platform as well as an increase in the average charter hire expense per day. The total chartered in days for the three months ended March 31, 2018 were 944 compared to 514 for the comparable quarter in the prior year.

Depreciation and amortization

Depreciation and amortization expense for the three months ended March 31, 2018 and 2017 was $9.3 million and $7.5 million, respectively. Total depreciation and amortization expense for the three months ended March 31, 2018 includes $8.1 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, 2017 were $6.5 million of vessel and other fixed asset depreciation and $1.0 million of amortization of deferred drydocking costs. The increase in depreciation was primarily due to the purchase of 10 Ultramax vessels during 2017 and one in January 2018 offset by the sale of two vessels during 2017 and one vessel classified as held for sale since the third quarter of 2017. The amortization of drydock expense increased in the current quarter compared to the comparable quarter in the prior year primarily due to the completion of three drydocks in 2017 and two in the first quarter of 2018.

General and administrative expenses

General and administrative expenses for the three months ended March 31, 2018 and 2017 were $9.9 million and $7.8 million, respectively. General and administrative expenses include stock-based compensation of $3.5 million and $2.2 million for 2018 and 2017, respectively. The increase in general and administrative expenses was mainly attributable to increases in compensation expense including stock-based compensation expense. The increase in compensation expense relates to incremental staff hired in connection with the increased fleet size under our owner-operator business model.

Interest expense

Interest expense for the three months ended March 31, 2018 and 2017 was $6.3 million and $6.4 million, respectively. The decrease in interest expense is mainly due to the decrease in amortization of debt discount and debt issuance costs by $1.0 million resulting from the debt refinancing in December 2017 where the high interest bearing Second Lien Facility was repaid in full which was offset by an increase in interest expense of $0.8 million on the Ultraco Debt Facility which was used for acquisition of ten Ultramax vessels.

Liquidity and Capital Resources

Net cash provided by operating activities for the three months ended March 31, 2018 was $14.9 million, compared with net cash used in operating activities of $2.0 million in the comparable quarter in 2017. The cash flows from operating activities improved over the prior year primarily due to an increase in charter hire rates driven by improvement in the dry bulk market and positive working capital change as compared to the corresponding period in the prior year, partially offset by higher drydocking expenditures of $1.1 million in 2018 compared to $0.02 million in the comparable quarter prior year.

Net cash used in investing activities for the three months ended March 31, 2018 was $15.3 million, compared to $21.9 million in the comparable quarter in the prior year. The Company purchased one Ultramax vessel in the first quarter of 2018 for $21.3 million out of which the Company paid a deposit of $2.2 million as of December 31, 2017. Additionally, the Company redeemed a $4.5 million of short-term certificate of deposit during the first quarter of 2018. During the first quarter of 2017, the Company purchased one Ultramax vessel for $17.3 million and paid a deposit of $10.3 million relating to acquisition of nine Ultramax vessels offset by proceeds from the sale of M/V Redwing for $5.8 million.

Net cash provided by financing activities for the three months ended March 31, 2018 was $2.1 million compared with $93.1 million in the comparable quarter in 2017. The Company drew down $8.6 million under the Ultraco Debt Facility in connection with the purchase of one Ultramax vessel, offset by repayment of $5.0 million of the Revolving Loan under the New First Lien Facility. The Company paid $1.2 million of debt issuance costs on the three existing debt facilities and $0.2 million towards shares withheld for taxes due to vesting of restricted shares. In the three months ended March 31, 2017, the Company received net proceeds of $96.0 million in a common stock private placement, that closed on January 20, 2017 and repaid $2.9 million of its Term Loan under the First Lien Facility from the proceeds of the sale of the vessel Redwing.

As of March 31, 2018, our cash and cash equivalents balance was $57.9 million compared to a cash and cash equivalents balance of $56.3 million as of December 31, 2017.

As of March 31, 2018, the total availability in the revolving credit facilities under the Super Senior Facility and the New First Lien Facility was $20.0 million.

As of March 31, 2018, the Company’s debt consisted of $200.0 million in outstanding bonds, $60.0 million in term loan under the New First Lien Facility and $69.8 million, under the 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 these 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, 2018 , two of our vessels were drydocked and we incurred $1.1 million in drydocking related costs. In the three months ended March 31, 2017, no vessels were drydocked.

The following table represents certain information about the estimated costs for anticipated vessel drydockings in the next four quarters, along with the anticipated off-hire days:

Quarter Ending Off-hire Days (1) Projected Costs (2)
June 30, 2018 88 $2.6 million
September 30, 2018 66 $1.9 million
December 31, 2018 44 $1.3 million
March 31, 2019 44 $1.3 million
(1) Actual duration of drydocking will vary based on the condition of the vessel, yard schedules and other factors.
(2) Actual costs will vary based on various factors, including where the drydockings are actually performed.

SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA

The following table summarizes the Company’s selected condensed consolidated financial and other data for the periods indicated below.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended
March 31, 2018 March 31, 2017
Revenues, net $ 79,370,609 $ 45,855,057
Voyage expenses 22,514,592 13,353,347
Vessel expenses 21,078,657 17,955,519
Charter hire expenses 10,268,064 3,873,332
Depreciation and amortization 9,276,415 7,492,808
General and administrative expenses 9,913,964 7,778,821
Gain on sale of vessel (92,114 )
Total operating expenses 73,051,692 50,361,713
Operating income/(loss) 6,318,917 (4,506,656 )
Interest expense 6,261,069 6,445,031
Interest income (95,276 ) (189,798 )
Other expense 100,379 306,559
Total other expense, net 6,266,172 6,561,792
Net income/(loss) $ 52,745 $ (11,068,448 )
Weighted average shares outstanding:
Basic 70,452,814 65,637,692
Diluted 71,531,864 65,637,692
Per share amounts:
Basic income/(loss) $ 0.00 $ (0.17 )
Diluted income/(loss) $ 0.00 $ (0.17 )
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, 2018 December 31, 2017
ASSETS:
Current assets:
Cash and cash equivalents $ 57,897,634 $ 56,251,044
Accounts receivable 13,976,108 17,246,540
Prepaid expenses 3,663,037 3,010,766
Short-term investment 4,500,000
Inventories 13,622,341 14,113,079
Vessels held for sale 19,670,950 9,316,095
Other current assets 1,577,556 785,027
Total current assets 110,407,626 105,222,551
Noncurrent assets:
Vessels and vessel improvements, at cost, net of accumulated depreciation of $105,608,055 and $99,910,416, respectively 693,895,309 690,236,419
Advances for vessels purchase 2,201,773
Other fixed assets, net of accumulated amortization of $387,759 and $343,799, respectively 572,587 617,343
Restricted cash 74,917 74,917
Deferred drydock costs, net 9,654,102 9,749,751
Deferred financing costs – Super Senior Facility 285,342 190,000
Other assets 54,269 57,181
Total noncurrent assets 704,536,526 703,127,384
Total assets $ 814,944,152 $ 808,349,935
LIABILITIES & STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 9,015,305 $ 7,470,844
Accrued interest 5,912,503 1,790,315
Other accrued liabilities 5,984,737 11,810,366
Fair value of derivatives 152,560 73,170
Unearned charter hire revenue 6,231,209 5,678,673
Current portion of long-term debt 11,875,142 4,000,000
Total current liabilities 39,171,456 30,823,368
Noncurrent liabilities:
Norwegian Bond Debt, net of debt discount and debt issuance costs 190,160,155 189,950,329
New First Lien Facility, net of debt discount and debt issuance costs 54,436,463 63,758,185
Ultraco Debt Facility, net of debt discount and debt issuance costs 65,001,075 59,975,162
Other liabilities 158,033 177,846
Fair value below contract value of time charters acquired 2,329,537 2,500,012
Total noncurrent liabilities 312,085,263 316,361,534
Total liabilities 351,256,719 347,184,902
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 25,000,000 shares authorized, none issued as of March 31, 2018 and December 31, 2017, respectively
Common stock, $0.01 par value, 700,000,000 shares authorized, 70,515,018 and 70,394,307 shares issued and outstanding as of March 31, 2018 and December 31, 2017, respectively 705,151 703,944
Additional paid-in capital 890,881,460 887,625,902
Accumulated deficit (427,899,178 ) (427,164,813 )
Total stockholders’ equity 463,687,433 461,165,033
Total liabilities and stockholders’ equity $ 814,944,152 $ 808,349,935
CONDENSED CONSOLIDATED CASH FLOWS
Three Months Ended
March 31, 2018 March 31, 2017
Cash flows from operating activities:
Net income/(loss) $ 52,745 $ (11,068,448 )
Adjustments to reconcile net income/(loss) to net cash provided by/(used in) operating activities:
Depreciation 8,073,353 6,510,735
Amortization of deferred drydocking costs 1,203,062 982,073
Amortization of debt issuance costs 490,095 1,444,963
Amortization of fair value below contract value of time charter acquired (170,475 ) (205,078 )
Payment-in-kind interest on debt 2,334,893
Net unrealized loss on fair value of derivative instruments 208,235 293,007
Stock-based compensation expense 3,510,911 2,170,700
Drydocking expenditures (1,107,414 ) (25,807 )
Gain on sale of vessel (92,114 )
Changes in operating assets and liabilities:
Accounts receivable 3,270,432 (3,676,803 )
Other current and non-current assets (121,954 ) (426,860 )
Prepaid expenses (652,271 ) 502,054
Inventories 490,738 2,148,742
Accounts payable 1,544,461 (249,235 )
Accrued interest 4,122,188 (28,872 )
Other accrued and other non-current liabilities (5,009,784 ) (3,738,154 )
Unearned revenue (1,031,082 ) 1,114,886
Net cash provided by/(used in) operating activities 14,873,240 (2,009,318 )
Cash flows from investing activities:
Purchase of vessels and vessel improvements (19,841,535 ) (17,297,323 )
Advance paid for purchase of vessel (10,320,000 )
Proceeds from redemption of Short-term investment 4,500,000
Proceeds from sale of vessels 5,790,500
Purchase of other fixed assets 966 (47,008 )
Net cash used in investing activities (15,340,569 ) (21,873,831 )
Cash flows from financing activities:
Repayment of term loan under First Lien Facility (2,895,250 )
Repayment of revolver loan under New First Lien Facility (5,000,000 )
Proceeds from Ultraco Debt Facility 8,600,000
Proceeds from the common stock private placement, net of issuance costs 96,030,003
Cash used to settle net share equity awards (254,146 )
Other financing costs (1,231,935 )
Net cash provided by financing activities 2,113,919 93,134,753
Net increase in cash and cash equivalents and restricted cash 1,646,590 69,251,604
Cash and cash equivalents and restricted cash at beginning of period 56,325,961 76,591,027
 Cash and cash equivalents and restricted cash at end of period $ 57,972,551 $ 145,842,631
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the year for interest $ 1,648,787 $ 2,694,046

Reconciliation of Net income/(loss) to EBITDA and Adjusted EBITDA

In addition to the Company’s financial results reported in accordance with accounting principles generally accepted in the United States of America (“GAAP”) included in this press release, the Company has provided certain financial measures that are not calculated according to GAAP, including EBITDA and Adjusted EBITDA. We define EBITDA as net income /(loss) under GAAP attributable to the Company adjusted for interest, income taxes, depreciation and amortization.

Adjusted EBITDA is a non-GAAP financial measure that is used as a supplemental financial measure by our management and by external users of our financial statements, such as investors, commercial banks and others, to assess our operating performance as compared to that of other companies in our industry, without regard to financing methods, capital structure or historical costs basis. Our Adjusted EBITDA should not be considered an alternative to net income (loss), operating income (loss), cash flows provided by (used in) operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. Our Adjusted EBITDA may not be comparable to similarly titled measures of another company because all companies may not calculate Adjusted EBITDA in the same manner. Adjusted EBITDA represents EBITDA adjusted to exclude the items which represent certain non-cash, one-time and other items such as vessel impairment, gain /(loss) on sale of vessels, restructuring expenses and stock-based compensation expenses that the Company believes are not indicative of the ongoing performance of its core operations. The following table presents a reconciliation of our net income/(loss) to EBITDA and Adjusted EBITDA.

Three Months Ended
March 31, 2018 March 31, 2017
Net income/(loss) $ 52,745 $ (11,068,448 )
Adjustments to reconcile net income/(loss) to EBITDA:
Interest expense 6,261,069 6,445,031
Interest Income (95,276 ) (189,798 )
Income taxes
EBIT 6,218,538 (4,813,215 )
Depreciation and amortization 9,276,415 7,492,808
EBITDA 15,494,953 2,679,593
Non-cash, one-time and other adjustments to EBITDA(1): 3,340,436 1,873,508
Adjusted EBITDA $ 18,835,389 $ 4,553,101

(1) One-time and other adjustments to EBITDA includes; loss on debt extinguishment, vessel impairment, restructuring charges, stock-based compensation, (gain)/loss on sale of vessels and amortization of fair value below contract value of time charter acquired.

Reconciliation of net revenues to TCE

Time charter equivalent (“TCE”) is a non-GAAP financial measure that is commonly used in shipping industry primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charter hire rates for vessels on voyage charters are generally not expressed in per-day amounts while charter hire rates for vessels on time charters generally are expressed in such amounts. The Company defines TCE as shipping revenues less voyage expenses and charter hire expenses, adjusted for the impact of one legacy time charter and gains on FFAs and bunker swaps, divided by the number of owned available days. TCE provides additional meaningful information in conjunction with shipping revenues, the most directly comparable GAAP measure, because it assists Company management in making decisions regarding the deployment and use of its vessels and in evaluating their financial performance. The Company’s calculation of TCE may not be comparable to that reported by other companies. The Company calculates relative performance by comparing TCE against the Baltic Supramax Index (“BSI”) adjusted for commissions and fleet makeup. Owned available days is the number of our ownership days less the aggregate number of days that our vessels are off-hire due to vessel familiarization upon acquisition, repairs, vessel upgrades or special surveys. The shipping industry uses available days to measure the number of days in a period during which vessels should be capable of generating revenues.

Three Months Ended
March 31, 2018 March 31, 2017
Revenues, net $ 79,370,609 $ 45,855,057
Less:
Voyage expenses (22,514,592 ) (13,353,347 )
Charter hire expenses (10,268,064 ) (3,873,332 )
Reversal of one legacy time charter (86,487 ) (302,444 )
Realized gain on FFAs and bunker swaps 116,982
TCE revenue 46,618,448 28,325,934
Owned available days 4,218 3,620
TCE $ 11,052 $ 7,825

 

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