Scorpio Bulkers returns to profit in second quarter

Scorpio-Bulkers

Scorpio Bulkers Inc. reported its results for the three and six months ended June 30, 2018.

The Company also announced that its Board of Directors has declared a quarterly cash dividend of $0.02 per share on the Company’s common stock.

Results for the Three and Six Months Ended June 30, 2018 and 2017

For the second quarter of 2018, the Company’s GAAP net income was $0.8 million, or $0.01 per diluted share. For the same period in 2017, the Company’s GAAP net loss was $13.4 million, or $0.19 loss per diluted share. Total vessel revenues for the second quarter of 2018 were $60.6 million, compared to $37.7 million for the same period in 2017. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the second quarter of 2018 and 2017 were $28.1 million and $10.8 million, respectively (see Non-GAAP Financial Measures below).

For the six months ended June 30, 2018, the Company’s GAAP net loss was $5.0 million or $0.07 loss per diluted share. For the same period in 2017, the Company’s GAAP net loss was $48.0 million, or $0.67 loss per diluted share. Total vessel revenues for the first half of 2018 were $114.9 million, compared to $72.5 million for the same period in 2017. EBITDA for the six months ended June 30, 2018 and 2017 were $48.4 million and a loss of less than $0.1 million, respectively (see Non-GAAP Financial Measures below).

While the first half of 2018 included no non-GAAP adjustments to net income, the Company’s first half of 2017 net income included a loss/write-off of vessels and assets held for sale of $17.7 million and the write-off of deferred financing costs on the credit facility related to those specific vessels of $0.5 million. Excluding these items, the Company’s first half of 2017 adjusted net loss was $29.8 million, or $0.41 adjusted loss per diluted share. Adjusted EBITDA for the first half of 2017 was $17.7 million (see Non-GAAP Financial Measures below).

TCE Revenue

TCE Revenue Earned during the Second Quarter of 2018

Our Kamsarmax fleet earned $12,823 per day
Our Ultramax fleet earned $11,569 per day
Voyages Fixed thus far for the Third Quarter of 2018

Kamsarmax fleet: approximately $13,974 per day for 47% of the days
Ultramax fleet: approximately $10,963 per day for 46% of the days
Cash and Cash Equivalents

As of July 20, 2018, the Company had approximately $80.5 million in cash and cash equivalents.

Recent Significant Events

Dividend

In the second quarter of 2018, the Company’s Board of Directors declared and the Company paid a quarterly cash dividend of $0.02 per share totaling approximately $1.5 million.

On July 23, 2018, the Company’s Board of Directors declared a quarterly cash dividend of $0.02 per share, payable on or about August 31, 2018, to all shareholders of record as of August 15, 2018. As of July 23, 2018, 75,960,341 shares were outstanding.

Newbuilding Vessel Delivery

On June 28, 2018, the Company took delivery of the SBI Lynx, a Kamsarmax vessel, from Jiangsu Yangzijiang Shipbuilding Co. Ltd.

Debt

$30.0 Million Credit Facility

In June 2018, the Company received a commitment for a loan facility of up to $30.0 million from ING Bank N.V. to refinance two of the Company’s Kamsarmax bulk carriers (SBI Zumba and SBI Parapara). The loan facility has a final maturity date of five years from drawdown date and bears interest at LIBOR plus a margin of 2.20% per annum. This loan facility increases the Company’s liquidity by approximately $8.0 million after repayment of the vessels’ existing debt. The terms and conditions are similar to those set forth in the Company’s existing credit facilities and the loan facility is subject to customary conditions precedent and the execution of definitive documentation.

$19.0 Million Lease Financing – SBI Echo

On July 18, 2018, the Company closed a previously announced financing transaction with an unaffiliated third party involving the sale and leaseback of the SBI Echo, a 2015 Japanese built Ultramax vessel, for consideration of $19.0 million. As part of the transaction, the Company will make payments of $5,400 per day under a five-year bareboat charter agreement with the buyer. If converted to floating interest rates, based on the expected weighted average life of the transaction, the equivalent cost of financing at the then prevailing swap rates would have been LIBOR + 1.97% per annum.

The transaction also provides the Company with options to repurchase the vessel beginning on the third anniversary of the sale until the end of the bareboat charter agreement. This transaction, which is being treated as a financial lease for accounting purposes beginning in the third quarter of 2018, increased the Company’s liquidity by approximately $7.9 million after repayment of the vessel’s existing loan.

$19.0 Million Lease Financing – SBI Tango

On July 18, 2018, the Company closed a previously announced financing transaction with an unaffiliated third party involving the sale and leaseback of the SBI Tango, a 2015 Japanese built Ultramax vessel, for consideration of $19.0 million. As part of the transaction, the Company will make payments of $5,400 per day under a five-year bareboat charter agreement with the buyer. If converted to floating interest rates, based on the expected weighted average life of the transaction, the equivalent cost of financing at the then prevailing swap rates would have been LIBOR + 1.73% per annum.

The transaction also provides the Company with options to repurchase the vessel beginning on the third anniversary of the sale until the end of the bareboat charter agreement. This transaction, which is being treated as a financial lease for accounting purposes beginning in the third quarter of 2018, increased the Company’s liquidity by approximately $10.3 million after repayment of the vessel’s existing loan.

Debt Overview

During the second quarter of 2018, the Company drew down the entire $12.8 million available to it under the $12.8 Million Credit Facility, for which the SBI Lynx serves as collateral.

Our Ultramax Operations vessel operating costs were $18.0 million for the second quarter of 2018, including approximately $1.2 million of takeover costs and contingency expenses, and related to 37 vessels owned on average during the period. Vessel operating costs for the prior year period were $12.3 million and related to 28 vessels owned on average during the period. Daily operating costs excluding takeover costs and contingency expenses for the second quarters of 2018 and 2017 were $5,003 and $4,772, respectively. Sequentially, daily operating costs increased from $4,909 in the first quarter of 2018. The increase versus both periods is due primarily to the timing of store purchases as we make purchases in bulk to reduce overall cost.

Charterhire expense for our Ultramax Operations was approximately $0.9 million for the second quarter of 2018, and relates to the vessel we have time chartered-in at $10,125 per day. During the second quarter of 2017 we did not charter-in any Ultramax vessels.

Ultramax Operations depreciation increased to $9.3 million in the second quarter of 2018 from $7.4 million in the prior year period, reflecting the increase in our weighted average vessels owned to 37 from 28.

General and administrative expense for our Ultramax Operations was $1.1 million for the second quarter of 2018 and $0.8 million in the prior year period. General and administrative expenses consist primarily of administrative service fees, which are incurred on a per vessel per day basis, and bank charges, which are incurred based on the number of transactions. The increase versus the prior year period reflects the growth of our fleet.

Vessel revenue for our Kamsarmax Operations increased to $20.9 million in the second quarter of 2018 from $16.5 million in the prior year period.

TCE revenue (see Non-GAAP Financial Measures) for our Kamsarmax Operations was $20.9 million for the second quarter of 2018 and was associated with a day-weighted average of 18 vessels owned, compared to $16.3 million for the prior year period, which was associated with a day-weighted average of 19 vessels owned and one vessel time chartered-in. TCE revenue per day was $12,823 and $9,273 for the second quarters of 2018 and 2017, respectively.

Kamsarmax Operations vessel operating costs were $8.1 million for the second quarter of 2018, including approximately $0.2 million of takeover costs and contingency expenses, related to 18 vessels owned, on average during the period. Vessel operating costs for the prior year period were $8.8 million and related to 19 vessels owned, on average during the period. Daily operating costs excluding takeover costs and contingency expenses for the second quarters of 2018 and 2017 were $4,801 and $4,989, respectively. Sequentially, daily operating costs decreased from $5,172 in the first quarter of 2018, due in large part to the timing of spare and store purchases.

While we do not time charter-in any Kamsarmax vessels, we have a profit and loss sharing agreement with a third party and during the second quarter of 2018, our share of the loss on that vessel was $0.1 million. During the prior year period, a Kamsarmax vessel was time chartered-in at a cost of $1.7 million.

Kamsarmax Operations depreciation remained relatively flat at $4.7 million in the second quarter 2018 compared to $4.6 million in the prior year period. Our weighted average vessels owned were 18 and 19, in the second quarter of 2018 and 2017, respectively.

General and administrative expense for our Kamsarmax Operations was $0.5 million for both the second quarters of 2018 and 2017. The expense consists primarily of administrative services fees, which are incurred on a per vessel per day basis, and bank charges, which are incurred based on the number of transactions.

Corporate

Certain general and administrative expenses we incur and all of our financial expenses are not attributable to a specific segment. Accordingly, these costs are not allocated to any of our segments. These general and administrative expenses, including compensation, audit, legal and other professional fees, as well as the costs of being a public company, such as director fees, were $5.8 million and $6.2 million in the second quarters of 2018 and 2017, respectively. The quarter over quarter decline is due to reductions in restricted stock amortization and legal fees.

Financial expenses, net increased to $11.2 million in the second quarter of 2018 from $8.7 million in the prior year period due to an increase in the LIBOR rate and higher levels of debt related to the increase in overall fleet size.

Financial Results for the Six Months Ended June 30, 2018 Compared to the Six Months Ended June 30, 2017

For the first half of 2018, the Company’s GAAP net loss was $5.0 million or $0.07 loss per diluted share. For the same period in 2017, the Company’s GAAP net loss was $48.0 million, or $0.67 loss per diluted share. EBITDA for the first half of 2018 and 2017 were $48.4 million and a loss of less than $0.1 million, respectively (see Non-GAAP Financial Measures). Excluding the loss/write-off of vessels and assets held for sale of $17.7 million and the write-off of deferred financing costs on the credit facility related to those specific vessels of $0.5 million, the Company’s adjusted net loss for the first half of 2017 was $29.8 million, or $0.41 adjusted loss per diluted share (see Non-GAAP Financial Measures below). There were no such non-GAAP adjustments to the Company’s first half of 2018 net income. Adjusted EBITDA for the first half of 2017 was $17.7 million (see Non-GAAP Financial Measures below).

Total vessel revenues for the first half of 2018 were $114.9 million, an increase of $42.4 million from $72.5 million in the first half of 2017. Our TCE revenue (see Non-GAAP Financial Measures) for the first half of 2018 was $114.6 million, an increase of $42.4 million from the first half of 2017.

Total operating expenses for the first half of 2018 were $98.3 million compared to $103.4 million in the first half of 2017. The year over year decrease relates in part to the loss/write-off of vessels and assets held for sale of $17.7 million recorded in the first half of 2017, partially offset by increases in compensation as well as vessel operating costs and depreciation resulting from the increase in the size of our fleet.

Vessel revenue for our Ultramax Operations increased to $73.1 million for the first half of 2018 from $41.0 million in the prior year period.

TCE revenue (see Non-GAAP Financial Measures) for our Ultramax Operations was $72.9 million for the first half of 2018 and was associated with a day-weighted average of 37 vessels owned and one time chartered-in vessel, compared to $41.0 million for the prior year period, which was associated with a day-weighted average of 28 vessels owned. TCE revenue per day was $10,666 and $8,297 for the six months ended June 30, 2018 and 2017, respectively.

Our Ultramax Operations vessel operating costs were $35.3 million for the first half of 2018, including approximately $2.0 million of takeover costs and contingency expenses, and related to 37 vessels owned on average during the period. Vessel operating costs for the prior year period were $24.6 million and related to 28 vessels owned on average during the period. Daily operating costs excluding takeover costs, contingency expenses and other non-operating expenses for the first half of 2018 and 2017 were $4,956 and $4,848, respectively. The increase is due to the timing of store purchases as we make bulk purchases in an effort to reduce the overall cost, as well as freight and forwarding expense.

Charterhire expense for our Ultramax Operations was approximately $1.8 million for the first half of 2018, and relates to the vessel we have time chartered-in at $10,125 per day. We did not charter-in any Ultramax vessels during the first half of 2017.

Ultramax Operations depreciation increased to $18.5 million in the first half of 2018 from $14.5 million in the prior year period reflecting the increase in our weighted average vessels owned to 37 from 28.

General and administrative expense for our Ultramax Operations was $2.1 million for the first half of 2018 and $1.7 million in the prior year period. General and administrative expenses consist primarily of administrative service fees, which are incurred on a per vessel per day basis, and bank charges, which are incurred based on the number of transactions. The increase versus the prior year period reflects the growth of our fleet.

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