Star Bulk Carriers reports 3Q loss

Star Bulk

Star Bulk Carriers, a global shipping company focusing on the transportation of dry bulk cargoes, today announced its unaudited financial and operating results for the third quarter and nine months ended September 30, 2016.

Financial Highlights

(Expressed in thousands of U.S. dollars,
except for daily rates and per share data)
Third quarter 2016 Third quarter 2015 Nine months ended
September 30, 2016
Nine months ended
September 30, 2015
Total Revenues 59,912 68,814 158,865 170,132
Net income/(loss) (2) (39,406 ) (41,973 ) (121,102 ) (147,170 )
EBITDA (1) (9,375 ) (6,967 ) (23,985 ) (51,869 )
Adjusted EBITDA (1) 11,869 6,128 6,190 6,752
Adjusted Net income / (loss) (2) (20,267 ) (24,990 ) (88,758 ) (77,125 )
Earnings / (loss) per share basic and diluted (0.86 ) (0.96 ) (2.72 ) (3.92 )
Adjusted earnings / (loss) per share basic and diluted (2) (0.44 ) (0.57 ) (1.99 ) (2.05 )
Average Number of Vessels 69.5 71.2 70.4 68.7
Voyage revenues 59,884 68,745 158,746 169,927
Daily Time Charter Equivalent Rate (“TCE”) (3) 7,558 8,691 6,356 8,126
Average daily OPEX per vessel 3,784 4,484 3,813 4,602
Average daily OPEX per vessel (excluding pre-delivery expenses) 3,784 4,237 3,722 4,325

(1) EBITDA and Adjusted EBITDA are non-GAAP measures, please see the table at the back of this release for a reconciliation to Net Cash Provided by / (Used in) Operating Activities, which is the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles in the United States (“U.S. GAAP”). To derive Adjusted EBITDA we exclude non-cash gains / (losses) and non-recurring items.

(2) Adjusted Net income / (loss) is a non-GAAP measure, please see the table at the back of this release for a reconciliation to Net income / (loss).

(3) Daily Time Charter Equivalent Rate (“TCE”) is a non-GAAP measure, please see the table at the back of this release for a reconciliation to Voyage Revenues.

Petros Pappas, Chief Executive Officer of Star Bulk, commented:
“We released today our Q3 and nine months 2016 financial results. Total revenues for the quarter were at $60 million, corresponding to an average daily TCE per vessel of $7,558. Our average daily OPEX per vessel for Q3 2016 was $3,784, reduced by 15.6% y-o-y. Our average daily G&A expenses and management fees for Q3 2016, net for non-cash items, were at $1,047 per vessel. Adjusted EBITDA was $11.9 million, increased by 94% y-o-y, as our cost and process optimization initiatives continue to bear fruit.

As previously announced, during the third quarter of 2016 we have agreed the restructuring of our debt facilities, pushing debt repayments of approximately $224 million until after June 30, 2018 and raising $51.5 million of new equity, with our significant shareholders providing approximately 65% of that. We would like to thank our lenders as well as our shareholders for their continuous support.”

Third Quarter 2016 and 2015 Results (*)
(*) Amounts relating to variations in period – on – period comparisons shown in this section are derived from the actual numbers in our books and records. In addition, all share and per share amounts disclosed in this report give effect to our company’s 1 to 5 reverse stock split effective June 20, 2016, retroactively, for all periods presented. We refer to the presentation of all share and per share amounts as the “reverse split‐adjusted basis”.

For the third quarter of 2016, total voyage revenues were $59.9 million, compared to $68.7 million for the third quarter of 2015, and the TCE for the corresponding periods was $7,558 and $8,691, respectively. This decrease was primarily driven by the lower charterhire rates prevailing in the dry bulk market during the third quarter of 2016, compared to the third quarter of 2015.

For the third quarter of 2016, operating loss was $30.2 million, which includes a non-cash impairment loss of $11.8 million and a net loss on sale of vessels of $8.4 million. Operating loss for the third quarter of 2015 of $30.7 million, includes a non-cash impairment loss of $5.4 million and a net loss on sale of vessels of $7.1 million.

Net loss for the third quarter of 2016 was $39.4 million, or $0.86 loss per basic and diluted share, calculated based on 45,734,704 shares, which is the weighted average number of basic and diluted shares. Net loss for the third quarter of 2015 was $42.0 million, or $0.96 loss per basic and diluted share, calculated based on 43,824,122 shares, which is the weighted average number of basic and diluted shares.

Net loss for the third quarter of 2016, mainly included the following non-cash items:

Expenses of $1.1 million, or $0.02 per basic and diluted share, relating to stock based compensation recognized in connection with the shares that were granted to our directors and employees;
Impairment loss of $11.8 million, or $0.26 per basic and diluted share, recognized in anticipation of the sale of the Star Aline and its delivery to its new owners in early October 2016, which as of September 30, 2016, was classified as held for sale;
An aggregate net loss on sale of vessels of $8.4 million, or $0.18 per basic and diluted share, primarily relating to the sale of Star Monisha, completed during the third quarter of 2016; and
Unrealized gain on derivative instruments of $2.5 million, or $0.06 per basic and diluted share.

Net loss for the third quarter of 2015, mainly included the following non-cash items:

Amortization of fair value of above-market acquired time charters of $2.0 million, or $0.04 per basic and diluted share, associated with time charters attached to certain acquired vessels. These above-market time charters are amortized over the duration of each charter as a decrease to voyage revenues;
Expenses of $0.6 million, or $0.01 per basic and diluted share, relating to stock based compensation expense recognized in connection with shares that were granted to our directors and employees;
Loss on sale of vessels of $7.1 million, or $0.16 per basic and diluted share, relating to the sale of vessels Star Natalie, Star Claudia and Maiden Voyage;
Impairment loss of $5.4 million or $0.12 per basic and diluted share, in connection with (i) the agreement to sell Star Nicole, which was delivered to its new owners in October 2015 and, (ii) the agreement to reassign a lease for one newbuilding vessel back to the vessel’s owner for a one-time payment to the Company of $5.8 million. The impairment loss includes an $2.5 million write-off of the fair value adjustment recognized for the newbuilding vessel acquired in July 2014 in connection with the Oceanbulk Merger; and
Unrealized loss on derivative instruments of $1.9 million or $0.04 per basic and diluted share.

Excluding all non-cash items, net loss for the third quarter of 2016 would have been $20.3 million, or $0.44 loss, per basic and diluted share, compared to $25.0 million, or $0.57, loss per basic and diluted share for the third quarter of 2015. A reconciliation of Net income / (loss) to Adjusted Net income/ (loss) is set forth below in the financial tables contained in this release.

Adjusted EBITDA for the third quarter of 2016 and 2015, excluding the above items, was $11.9 million and $6.1 million, respectively. A reconciliation of EBITDA and adjusted EBITDA to net cash provided by/(used in) cash flows from operating activities is set forth below in the financial tables contained in this release.

During the third quarter of 2016 and 2015, we owned and operated an average of 69.5 and 71.2 vessels, respectively, which earned an average Time Charter Equivalent, or (“TCE”) of $7,558 and $8,691 per day, respectively. We refer you to footnote 8 under the heading “Summary of Selected Data” set forth below for information regarding our calculation of TCE rates.

For the third quarter of 2016, voyage expenses were $16.2 million, compared to $21.7 million for the third quarter of 2015. The decrease in voyage expenses was due primarily to the decrease in bunker prices despite the increased level of spot market activity, that is associated with higher voyage expenses than time charters.

For the third quarter of 2016, charter hire expense was $0.8 million, representing the expense for the lease back of the vessel Astakos (ex-Maiden Voyage), which we sold in September 2015. The corresponding expense for the third quarter in 2015 was $0.1 million.

For the third quarter of 2016 and 2015, vessel operating expenses were $24.2 million and $29.4 million, respectively. The decrease in operating expenses is attributable to our management’s continued focus on cost efficiencies, the addition to our fleet of newly built vessels with lower maintenance requirements and synergies and economies of scale from operating a large fleet, as well as the slight decrease in the average number of vessels in the third quarter of 2016 compared to the third quarter of 2015. As a result, our average daily operating expenses per vessel for the third quarter of 2016 were $3,784, compared to $4,484 during the third quarter of 2015, representing a 15.6% reduction.

Dry docking expenses for the third quarter of 2016 and 2015 were $1.4 million and $6.2 million, respectively. During the third quarter of 2016 two vessels underwent their periodic dry docking survey compared to the corresponding period in 2015, when eight of our vessels underwent periodic dry docking surveys.

Depreciation expense slightly decreased to $20.7 million for the third quarter of 2016, compared to $21.7 million for the third quarter of 2015, mainly due to the slightly lower average number of vessels in the third quarter of 2016 compared to the third quarter of 2015.

Management fees for the third quarter of 2016 and 2015 were $1.9 million and $2.4 million, respectively. During the third quarter of 2016 and 2015, management fees included a daily fee of $295 per vessel to Ship Procurement Services S.A., an unaffiliated third-party management company. The decrease is mainly attributable to the slightly lower average number of vessels during the third quarter 2016 compared to the respective period in 2015. In addition, management fees for the third quarter of 2015 also included an amount of $0.1 million, representing a monthly fee of $17,500 to Maryville Maritime Inc. for the management of the Star Martha, Star Pauline and Star Despoina, until the expiration of their then existing time charter agreements (the last expired in November 2015).

General and administrative expenses during the third quarter of 2016 amounted to $6.0 million, compared to $5.5 million general and administrative expenses during the third quarter of 2015. This variation was mainly due to higher stock based compensation expense, which is a non-cash item, of $1.1 million in the third quarter of 2016 as compared to $0.6 million in the same period in 2015. Excluding the above mentioned stock-based compensation expenses, general and administrative expenses were $4.9 million in both periods.

During the third quarter of 2016, we recognized other operational gain of $1.3 million concerning gain from insurance claims. No other operational gain was recognized in the corresponding period of 2015.

During the third quarter of 2016, we recorded an impairment loss of $11.8 million recognized in anticipation of the sale of the Star Aline and its delivery to its new owners in early October 2016, which as of September 30, 2016, we had classified as held for sale. During the same period in 2015, we recorded an impairment loss of an aggregate of $5.4 million in connection with the agreement to sell Star Nicole, which was delivered to its new owners in October 2015, and the agreement to reassign a lease for one newbuilding vessel back to the vessel’s owner for a one-time payment to us of $5.8 million. Of this $5.4 million impairment loss, $2.5 million related to the write-off of the fair value adjustment recognized upon the merger with Oceanbulk in July 2014 in connection with the newbuilding vessel.

During the third quarter of 2016, we delivered Star Monisha to its new owners, while Star Aline was delivered to its new owners in early October 2016. In connection with these sales, during the third quarter of 2016, we received sale proceeds of $11.7 million and recognized an aggregate net loss on sale of vessels of $8.4 million, primarily relating to the sale of Star Monisha. During the third quarter of 2015, we recognized an aggregate loss on sale of vessels of $7.1 million in connection with the sale of Star Natalie, Star Claudia and Maiden Voyage. Total proceeds from these sales were $27.9 million.

Interest and finance costs for the third quarter of 2016 and 2015 were $10.6 million and $7.7 million, respectively. The increase was attributable to an increase in LIBOR in third quarter of 2016 compared to the same period in 2015, despite average balance of our outstanding indebtedness of $977.8 million for the third quarter of 2016, compared to $1,000.1 million for the third quarter of 2015. These amounts of interest and finance costs were offset by interest capitalized from general debt of $0.7 million for the third quarter 2016 compared to $3.0 million for the respective period in 2015. We recognized these non-cash amounts in connection with the payments made for our newbuilding vessels. In addition, for the third quarter of 2016, interest and finance costs included $0.3 million representing realized loss on interest rate swaps designated as cash flow hedges, where for the third quarter of 2015, the corresponding amount was $0.4 million.

During the third quarter of 2016, we recorded a gain on derivative financial instruments of $1.4 million, while during the corresponding period in 2015, we recorded a loss on derivative financial instruments of $3.6 million. During the corresponding periods, five of our swaps outstanding were not designated as accounting hedges and their realized and unrealized gain/(loss) were recorded under gain/(loss) on derivative financial instruments.

Nine months ended September 30, 2016 and 2015 Results (*)
(*) Amounts relating to variations in period – on – period comparisons shown in this section are derived from the actual numbers in our books and records. In addition, all share and per share amounts disclosed in this report are presented on a reverse split-adjusted basis.

For the nine months ended September 30, 2016, total voyage revenues were $158.7 million, compared to $169.9 million for the corresponding period in 2015. This decrease is primarily driven by the lower charterhire rates prevailing in the dry bulk market during the nine months ended September 30, 2016, compared to the corresponding period in 2015. The TCE for the nine months ended September 30, 2016 and 2015 was $6,356 and $8,126, respectively.

For the nine months ended September 30, 2016, operating loss was $85.9 million, which includes a non-cash impairment loss of $18.5 million and a net loss on sale of vessels of $8.4 million. For the nine months ended September 30, 2015 operating loss was $121.4 million, which includes a non-cash impairment loss of $34.3 million and a net loss on sale of vessels of $20.5, as described in more detail below.

Net loss for the nine months ended September 30, 2016 was $121.1 million, or $2.72 loss per basic and diluted share, calculated based on 44,503,221 shares, which is the weighted average number of basic and diluted shares. Net loss for the corresponding period in 2015 was $147.2 million, or $3.92 loss per basic and diluted share, based on 37,540,975 shares, which is the weighted average number of basic and diluted shares.

Net loss for the nine months ended September 30, 2016, mainly included the following non-cash items:

Expenses of $3.4 million, or $0.08 per basic and diluted share, relating to the stock based compensation recognized in connection with the shares that were granted to our directors and employees;
An aggregate net loss on sale of vessels of $8.4 million, or $0.19 per basic and diluted share, resulting from the sale of certain vessels;
Impairment loss of $18.5 million, or $0.42 per basic and diluted share, mainly relating to the sale of two of our operating vessels (Star Michele and Star Aline); and
Write-off of unamortized deferred finance charges of $2.3 million or $0.05 per basic and diluted share, relating to: (i) the mandatory prepayment of outstanding amounts under several loans due to the sale of the corresponding mortgaged vessels, (ii) the cancellation of certain loan commitments resulting from (a) the sale of certain newbuilding vessels upon their delivery from the shipyards and (b) the termination of two newbuilding contracts agreed in February 2016.

Net loss for the nine months ended September 30, 2015, mainly included the following non-cash items:

Amortization of fair value of above-market acquired time charters of $9.0 million, or $0.24 per basic and diluted share, associated with time charters attached to seven acquired vessels. These above-market time charters are amortized over the duration of each charter as a decrease to voyage revenues;
Expenses of $2.0 million, or $0.05 per basic and diluted share, relating to stock based compensation expense recognized in connection with the shares that were granted to our directors and employees;
Impairment loss of $34.3 million, or $0.91 per basic and diluted share, relating to: (i) the sales of the Star Monika, Maiden Voyage and Star Nicole; (ii) an agreement to sell one of our newbuilding vessels upon its delivery in 2016; and (iii) two agreements to reassign the corresponding leases for two newbuilding vessels back to the vessels’ owners for a one-time payment to the Company of $5.8 million each. The impairment loss includes $20.7 million, which is attributed to the write-off of the fair value adjustment recognized for certain of these vessels which were acquired in July 2014 in connection with the Oceanbulk Merger.
Write off of above market acquired time charter of $2.1 million, or $0.06 per basic and diluted share, relating to the early redelivery of the vessel Star Big, which took place in connection with the vessel’s sale;
Loss on sale of vessels of $20.5 million, or $0.55 per basic and diluted share, relating to the sale of ten operating vessels;
Unrealized loss on derivative instruments of $1.4 million or $0.04 per basic and diluted share; and
Write-off of unamortized deferred finance charges of $1.0 million or $0.03 per basic and diluted share relating to: (i) the mandatory prepayment of outstanding amounts under several loan facilities due to the sale of the corresponding mortgaged vessels; and (ii) the full prepayment of certain of our outstanding loan facilities.

Excluding all non-cash items, net loss for the nine months ended September 30, 2016 would have been $88.8 million, or $1.99 loss, per basic and diluted share, compared to $77.1 million, or $2.05 loss per basic and diluted share for the corresponding period in 2015. A reconciliation of Net income / (loss) to Adjusted Net income/ (loss) is set forth below in the financial tables contained in this release.

Adjusted EBITDA for the nine months ended September 30, 2016 and 2015, excluding the above items, was $6.2 million and $6.8 million, respectively. A reconciliation of EBITDA and adjusted EBITDA to net cash provided by/used in operating activities is set forth below.

During the nine months ended September 30, 2016 and 2015, we owned and operated an average of 70.4 and 68.7 vessels, respectively, earning an average TCE rate of $6,356 and $8,126 per day, respectively. We refer you to footnote 8 under the heading “Summary of Selected Data” set forth below for information regarding our calculation of TCE rates.

For the nine months ended September 30, 2016, voyage expenses were $53.5 million, compared to $52.3 million for the corresponding period in 2015. The increase in voyage expenses was due to the slight increase in the average number of vessels in the nine months ended September 30, 2016, compared to the corresponding period in 2015. Moreover, the increased level of spot market activity, which is associated with higher voyage expenses compared to time charters, was partially counterbalanced by the decrease in bunker prices.

For the nine months ended September 30, 2016, charter hire expense was $2.7 million, representing the expense for the lease back of the vessel Astakos (ex-Maiden Voyage), which we sold in September 2015. The corresponding expense for the nine months ended September 30, 2015 was $0.1 million.

For the nine months ended September 30, 2016 and 2015, vessel operating expenses totalled $73.6 million and $86.3 million, respectively. The decrease in operating expenses despite the slightly higher average number of vessels in the nine months ended September 30, 2016 compared to the corresponding period in 2015 is attributable to our management’s continued focus on cost efficiencies, the addition to our fleet of newly built vessels with lower maintenance requirements and further realization of synergies and economies of scale from operating a large fleet. Accordingly, our average daily operating expenses per vessel for the nine months ended September 30, 2016 were $3,813, compared to $4,602 during the corresponding period in 2015, representing a 17.1% reduction. Vessel operating expenses for the nine months ended September 30, 2016 and 2015, respectively, included $1.8 million and $5.2 million of pre-delivery and pre-joining expenses, incurred in connection with the delivery of the new vessels in our fleet during each period. Pre-joining and pre-delivery expenses relate to the expenses for the initial crew manning, as well as the initial supply of stores for the vessel upon delivery. Excluding these amounts, our average daily operating expenses per vessel for the nine months ended September 30, 2016 and 2015 would have been $3,722 and $4,325, respectively.

Dry docking expenses for the nine months ended September 30, 2016 and 2015 were $3.0 million and $13.1 million, respectively. During the nine months ended September 30, 2016, five vessels completed their respective periodic dry docking surveys, two of which started in December 2015. During the corresponding period in 2015, 21 of our vessels underwent their periodic dry docking surveys.

Depreciation expense increased to $61.6 million for the nine months ended September 30, 2016, compared to $60.2 million for the corresponding period in 2015. The increase was mainly driven by the slightly higher average number of vessels in the nine months ended September 30, 2016 compared to the corresponding period in 2015.

Management fees for the nine months ended September 30, 2016 and 2015 were $5.8 million and $6.4 million, respectively. During the nine months ended September 30, 2016 and 2015, management fees included a daily fee of $295 per vessel to Ship Procurement Services S.A. Management fees for the corresponding period in 2015 also included an amount of $0.5 million, representing a monthly fee of $17,500 to Maryville Maritime Inc. for the management of the Star Martha, Star Pauline and Star Despoina, until the expiration of their then existing time charter agreements (the last expired in November 2015).

During the nine months ended September 30, 2016, we had $19.3 million general and administrative expenses, compared to $16.7 million during the corresponding period in 2015. During the nine months ended September 30, 2016, we incurred costs of $0.3 million relating to professional advisory services provided to us. These services were completed within the first half 2016 and such costs are not part of our ordinary course of business and will not burden our general and administrative expenses in the following quarters. Stock-based compensation expense, which is a non-cash item, for the nine months ended September 30, 2016 and 2015 were $3.4 million and $2.0 million, respectively. Excluding the above mentioned non-recurring costs and stock-based compensation expenses, general and administrative expenses increased to $15.6 million compared to $14.6 million, due to the increase in our average number of employees during the nine months ended September 30, 2016 as compared to the same period in 2015.

During the nine months ended September 30, 2016, we recorded an impairment loss of $18.5 million in connection with the sale of two operating vessels, which were delivered to their new owners in May 2016 and October 2016 (Star Michele and Star Aline) and the termination of two newbuilding contracts agreed to in February 2016. During the nine months ended September 30, 2015, we recorded an impairment loss of $34.3 million, relating to: (i) the sales of the vessels Star Monika, Maiden Voyage and Star Nicole; (ii) the agreement to sell one of our newbuilding vessels upon its delivery to us in 2016; and (iii) two agreements to reassign the corresponding leases for two newbuilding vessels back to the owner of each vessel for a one-time payment to us of $5.8 million for each vessel. The impairment loss recognized in 2015 included $20.7 million, resulting from the write-off of the fair value adjustment recognized for certain vessels acquired in July 2014 in connection with the merger and related transactions with Oceanbulk.

During the nine months ended September 30, 2015, we recognized a $2.1 million write-off of the unamortized fair value of the above-market acquired time charter of the vessel Star Big, due to its redelivery prior to the end of its time charter in connection with its sale and delivery to its new owners in June 2015.

During the nine months ended September 30, 2016, we recognized other operational gain of $1.4 million concerning gain from insurance claims. Other operational gain for the nine months ended September 30, 2015 was $0.6 million.

During the nine months ended September 30, 2016, we recognized an aggregate loss on sale of $8.4 million in connection with of the sale of twelve vessels. Total proceeds from these sales and the anticipated sale of the Star Aline were $374.6 million. During the nine months ended September 30, 2015, we recognized an aggregate loss on a sale of vessel of $20.5 million in connection with the sale of ten vessels. Total sale proceeds from these sales were $67.9 million.

Interest and finance costs for the nine months ended September 30, 2016 and 2015 were $30.3 million and $21.6 million, respectively. The increase is attributable to: (i) the higher average balance of our outstanding indebtedness of $982.6 million for the nine months ended September 30, 2016, compared to $940.4 million for the nine months ended September 30, 2015, and (ii) the increase in LIBOR for the nine months ended September 30, 2016 compared to the same period in 2015. These amounts of interest and finance costs for the nine months ended September 30, 2016 and 2015 were set-off by interest capitalized from general debt of $3.3 million and $9.2 million. We recognized these non-cash amounts in connection with the payments made for our newbuilding vessels. In addition, for the nine months ended September 30, 2016, interest and finance costs included $1.0 million realized loss on hedging interest rate swaps compared to $1.9 million for the corresponding period in 2015.

During the nine months ended September 30, 2016 and 2015, we recorded a loss on derivative financial instruments of $3.3 million and $4.3 million, respectively. As of January 1, 2015, all of our interest rate swaps had been designated as cash flow hedges. Our hedge effectiveness test for the second quarter of 2015 indicated that the hedging relationship of certain of our interest rate swaps no longer qualified for special hedge accounting. We therefore de-designated these swaps as accounting cash flow hedges as of April 1, 2015. Accordingly, realized and unrealized gain/(loss) from these swaps from April 1, 2015 onwards have been recorded in our statement of operations under Gain/(Loss) on derivative financial instruments. During the period that these swaps qualified for hedge accounting, their realized and unrealized gain/(loss) were recorded under interest and finance cost and equity, to the extent effective, respectively.

During the nine months ended September 30, 2016, we recorded $2.3 million of loss on debt extinguishment in connection with the non-cash write-off of unamortized deferred finance charges resulting from the mandatory prepayment in full of outstanding loan balances following the sale of certain vessels in the nine months ended September 30, 2016, as mentioned above, as well as from the cancellation of certain committed loan amounts resulting from (i) the sale of certain newbuilding vessels upon their delivery from the shipyards and (ii) the termination of two newbuilding contracts agreed in February 2016. During the nine months ended September 30, 2015, we recorded $1.0 million of loss on debt extinguishment, in connection with the non-cash write-off of unamortized deferred finance charges due to mandatory prepayments in full of certain of our loan facilities.

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