Scorpio Bulkers Shrinks Net Loss, Initiates Dividend

Scorpio-Bulkers-BIG

Scorpio Bulkers Inc., reported its results for the three and nine months ended September 30, 2017. The Company’s Board of Directors declared a quarterly cash dividend of $0.02 per share.

Emanuele Lauro, the Company’s Chairman and CEO, commented, “We are pleased with the steady quarter-on-quarter improvements in the rate environment and the resulting positive cash flow generated from operations. We believe that current market rates are sustainable and will continue to improve through 2018. As a result, we are excited to initiate a quarterly dividend, which is a reflection of our confidence in our Company’s financial strength and cash flow generation and the markets in which we operate.”

Results for the Three and Nine Months Ended September 30, 2017 and 2016

For the third quarter of 2017 the Company’s GAAP net loss was $10.7 million, or $0.15 loss per diluted share. For the same period in 2016 the Company’s GAAP net loss was $21.3 million, or $0.30 loss per diluted share. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the third quarters of 2017 and 2016 were $12.4 million and a loss of $1.3 million, respectively (see Non-GAAP Financial Measures below).

For the nine months ended September 30, 2017, the Company’s GAAP net loss was $58.7 million, or $0.82 loss per diluted share compared to a GAAP net loss of $104.3 million, or $2.05 loss per diluted share for the prior year period. EBITDA for the nine months ended September 30, 2017 and 2016 were $12.3 million and a loss of $46.6 million, respectively (see Non-GAAP Financial Measures below).

For the nine months ended September 30, 2017, the Company’s adjusted net loss was $40.5 million, or $0.56 adjusted loss per diluted share, which excludes the impact of a write down of assets held for sale of $17.7 million and a write off of deferred financing costs on the credit facility related to those specific vessels of $0.5 million. For the nine months ended September 30, 2016, the Company’s adjusted net loss was $79.4 million, or $1.56 adjusted loss per diluted share, which excludes a loss/write off of vessels and assets held for sale of $12.4 million, the write off of deferred financing costs on credit facilities that will no longer be used of $2.5 million and a charterhire contract termination fee of $10.0 million. Adjusted EBITDA for the nine months ended September 30, 2017 and 2016 were $30.0 million and a loss of $24.2 million, respectively (see Non-GAAP Financial Measures below).

Initiation of a Quarterly Dividend

Today the Company’s Board of Directors declared the Company’s first quarterly cash dividend of $0.02 per share, payable on or about December 15, 2017 to all shareholders as of November 15, 2017 (the record date).

As of October 23, 2017, 75,459,344 shares were outstanding.

Cash and Liquidity Overview

As of October 20, 2017, the Company had approximately $48.8 million in cash and cash equivalents. In addition, the Company had approximately $79.0 million freely available to draw down under the existing $409 Million Credit Facility.

TCE Revenue

TCE Revenue Earned during the third Quarter of 2017

Our Kamsarmax fleet earned $9,211 per day
Our Ultramax fleet earned $8,949 per day

Voyages Fixed thus far for the fourth Quarter of 2017

Kamsarmax fleet: approximately $11,180 per day for 52% of the days
Ultramax fleet: approximately $10,495 per day for 53% of the days

Recent Significant Events

Vessels Acquisition

During the third quarter of 2017, the Company entered into an agreement with an unaffiliated third party to acquire six Chinese built Ultramax dry bulk vessels for $142.5 million in the aggregate. Three of the vessels were built in 2015, one was built in 2016, and two were built in 2017.

As of October 20, 2017, the Company paid a 10% deposit, which will be held in escrow until each vessel is delivered. The acquisition, including the delivery of the vessels and payment of the remaining $128.3 million, is expected to occur in December 2017.

$85.5 Million Credit Facility

The Company has received a commitment for a loan facility of up to $85.5 million from Nordea Bank AB, New York Branch, and Skandinaviska Enskilda Banken AB (publ). The loan facility will be used to finance up to 60% of the market value of the six Ultramax vessels that the Company has recently agreed to acquire. The loan facility has a final maturity date of February 15, 2023 and bears interest at LIBOR plus a margin of 2.85% per annum. The terms and conditions are similar to those set forth in the Company’s existing credit facilities. The loan facility is subject to customary conditions precedent and the execution of definitive documentation.

$19.6 Million Japanese Lease Financing

In October 2017, the Company entered into a financing transaction in respect of one of the Company’s Kamsarmax vessels with unaffiliated third parties in Japan. The cost of the financing is equivalent to an expected fixed interest rate of 4.24% for 10 years. If converted to floating interest rates, based on the expected weighted average life of the transaction and swap rates (as of October 18, 2017), the equivalent margin at current swap rates would be LIBOR plus 2.07%.

The transaction involves the sale and leaseback of the SBI Rumba, a 2015 Japanese built Kamsarmax dry bulk vessel, for consideration of approximately $19.6 million. As part of the transaction, the Company entered into a 9.5 year bareboat charter agreement with the buyers, with the Company’s option to extend for a further six months. The agreement also provides the Company with options to repurchase the vessel beginning on the fifth anniversary of the sale and until the end of the agreement. This transaction, which shall be treated as a financial lease for accounting purposes, increases the Company’s liquidity by approximately $6.0 million, net of commissions and after repayment of the vessel’s existing loan.

Share Repurchase Program

The Board of Directors has authorized the repurchase of up to $50.0 million of the Company’s common stock in open market or privately negotiated transactions. The specific timing and amounts of the repurchases will be in the sole discretion of management and may vary based on market conditions and other factors, but the Company is not obligated under the terms of the program to repurchase any of its common stock. The authorization has no expiration date.

As of October 20, 2017, no shares have been repurchased under the authorization.

Agreement to Time Charter-In One Ultramax Vessel

During the third quarter of 2017, Ocean Phoenix Tree, which the Company agreed to time charter-in during the second quarter of 2017, was delivered to it. The vessel was time chartered-in at approximately $10,125 per day for two years and can be extended for an additional year at approximately $10,885 per day at the Company’s option.

Financial Results for the Three Months Ended September 30, 2017 Compared to the Three Months Ended September 30, 2016

The Company had a GAAP net loss of $10.7 million, or $0.15 loss per diluted share for the third quarter of 2017 compared with a GAAP net loss of $21.3 million, or $0.30 loss per diluted share for the third quarter of 2016. Earnings before interest, taxes, EBITDA for the third quarters of 2017 and 2016 were $12.4 million and a loss of $1.3 million, respectively (see Non-GAAP Financial Measures below).

Time charter equivalent (TCE) revenue, a Non-GAAP financial measure, is vessel revenues less voyage expenses (including bunkers, port charges, broker fees and other miscellaneous expenses that we are unable to recoup under time charter and pool arrangements). TCE revenue is included herein because it is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance irrespective of changes in the mix of charter types (i.e., spot charters, time charters, and pool charters), and it provides useful information to investors and management.

TCE revenue was $38.6 million for the third quarter of 2017 and is associated with a day weighted average of 46 vessels owned and one vessel time chartered-in compared to $24.1 million during the prior year quarter, which was associated with a day weighted average of 38 vessels owned and two vessels time chartered-in. TCE revenue per day was $9,053 and $6,791 for the third quarter of 2017 and 2016, respectively. TCE rates continued the sequential quarter on quarter growth as mineral demand increased in China and long grain hauls out of South America extended further into the third quarter than usual. TCE revenue increased greatly versus the third quarter of 2016 due to the increase in rates combined with the increase in revenue days associated with the growth of our fleet.

Vessel operating costs were $21.0 million associated with 46 vessels owned, on average, during the period. Vessel operating costs for the prior year quarter were $18.9 million and related to 38 vessels owned, on average, during the period. Sequentially, daily operating costs, excluding take over and other non-operating costs, increased to $4,951 in the third quarter of 2017 from $4,858 in the second quarter of 2017, as we experienced an increase in spares and repairs and maintenance primarily due to the timing of purchases which can fluctuate depending on when the vessels are in port.

Charterhire expense decreased to $0.8 million in the third quarter of 2017 from $2.6 million in the prior year period, reflecting the reduction in the number of vessels time chartered-in on a day weighted average. The time chartered-in vessel existing at the start of the third quarter of 2017 was redelivered in August 2017. A vessel that we agreed to time charter-in during the second quarter of 2017 was delivered to us in September 2017.

Depreciation increased to $12.1 million in the third quarter of 2017 from $10.0 million in the prior year period, reflecting the increase in our weighted average vessels owned to 46 from 38.

General and administrative expense decreased to $7.2 million from $8.9 million in the prior year period due primarily to decreases in restricted stock amortization caused by the run off of awards granted at a higher fair value, offset in part by an increase in administrative fees reflecting the growth of our fleet.

Financial Results for the Nine Months Ended September 30, 2017 Compared to the Nine Months Ended September 30, 2016

The Company had a GAAP net loss of $58.7 million, or $0.82 loss per diluted share for the nine months ended September 30, 2017 compared with a GAAP net loss of $104.3 million, or $2.05 loss per diluted share for the nine months ended September 30, 2016. EBITDA for the nine months ended September 30, 2017 and 2016 were $12.3 million and a loss of $46.6 million, respectively (see Non-GAAP Financial Measures below).

For the nine months ended September 30, 2017, the Company’s adjusted net loss was $40.5 million, or $0.56 adjusted loss per diluted share, which excludes the impact of a write down of assets held for sale of $17.7 million and a write off of deferred financing costs on the credit facility related to those specific vessels of $0.5 million. For the nine months ended September 30, 2016, the Company’s adjusted net loss was $79.4 million, or $1.56 adjusted loss per diluted share, which excludes a loss/write off of vessels and assets held for sale of $12.4 million, the write off of deferred financing costs on credit facilities that will no longer be used of $2.5 million and a charterhire contract termination fee of $10.0 million (see Non-GAAP Financial Measures below). Adjusted EBITDA for the nine months ended September 30, 2017 and 2016 were $30.0 million and a loss of $24.2 million, respectively (see Non-GAAP Financial Measures below).

TCE revenue was $110.7 million in the first nine months of 2017 and is associated with a day weighted average of 47 vessels owned and one vessel time chartered-in compared to $51.6 million during the prior year period, which was associated with a day weighted average of 34 vessels owned and four vessels time chartered-in. TCE revenue per day was $8,801 and $5,262 for the first nine months of 2017 and 2016, respectively. TCE revenue increased significantly versus the prior year due to the increase in rates, increased demand across all bulk sectors, regions and commodities, as well as a reduction in tonnage supply, combined with the increase in revenue days associated with the growth of our fleet.

Vessel operating costs were $63.9 million and included approximately $1.3 million of takeover costs associated with new deliveries, and $1.2 million of non-operating expenses and related to 47 vessels owned, on average, during the first nine months of 2017. Vessel operating costs for the prior year period were $49.8 million and related to 34 vessels owned, on average. Daily operating costs, excluding take over and other non-operating costs, were $4,947 in the first nine months of 2017.

Charterhire expense decreased to $4.4 million for the first nine months of 2017 from $14.8 million in the prior year period, reflecting the reduction in the number of vessels time chartered-in from four vessels to one vessel, on a day weighted average. Included in the prior year figures is a charterhire contract termination fee of $10.0 million incurred to terminate four time charter-in agreements. The time chartered-in vessel existing at the start of the third quarter of 2017 was redelivered in August 2017. An additional time charter-in at $10,125 per day commenced at the end of September 2017.

Depreciation increased to $35.7 million in the first nine months of 2017 from $26.0 million in the prior year period, reflecting the increase in our weighted average vessels owned to 47 from 34.

General and administrative expense decreased to $22.5 million from $25.3 million in the prior year period due primarily to decreases in restricted stock amortization, due to the run off of awards granted at a higher fair value, offset by an increase in administrative fees reflecting the growth of our fleet.

During the first nine months of 2017, we recorded a write down on assets held for sale of $17.1 million related to the sale of two Kamsarmax vessels to an unaffiliated third party and also recorded a $0.6 million adjustment related to vessels sold in the prior year. During the first nine months of 2016, the Company recorded a write down of vessels and assets held for sale of $12.4 million of which $11.6 million related to the cancellation of a shipbuilding contract for a Kamsarmax bulk carrier and $0.8 million in additional expenses related to vessels held for sale at December 31, 2015.

During the first nine months of 2017 and 2016, we wrote off $0.5 million and $2.5 million, respectively, of deferred financing costs accumulated on credit facilities for which the related vessels were sold or the commitments were otherwise reduced.

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