Star Bulk Carriers Corp., a global shipping company focusing on the transportation of dry bulk cargoes, announced its unaudited financial and operating results for the third quarter and the nine months ended September 30, 2020.
Petros Pappas, Chief Executive Officer of Star Bulk, commented:
“Star Bulk returned to profitability during the third quarter of 2020, reporting Net income of $23.3 million, Adjusted Net Income of $27.3 million, TCE Revenues of $137.8 million and Adjusted EBITDA of $79.7 million. We were able to take advantage of the recovering dry bulk market, increasing our TCE to $13,083/ day per vessel for the third quarter of 2020. Average Opex per vessel excluding non-recurring expenses and Net Cash G&A expenses per vessel were at $4,244/day and $985/day respectively.
Over the last few months, we have continued to strengthen our liquidity, having agreed 9 refinancings, increasing our cash by a total of $113.2 million and improving the average margin and repayment profile. Despite turbulent financial markets, we received a lot of support from our existing lenders and forged relationships with new financiers to expand our lending group. Our pro-forma current liquidity, including the available revolving credit facility, has reached $225 million.
It continues to be challenging to get crew on and off our vessels due to restrictions designed to slow the spread of COVID-19. The whole shipping industry, including us, continues to experience vessel itinerary disruptions as well as higher operating costs due to these restrictions.
Our outlook for the market continues to be constructive, despite the uncertainty stemming from the COVID-19 pandemic. Supply is at historical lows due to the recent demand shocks and ambiguity around the future of vessel propulsion technology, while demand for dry bulk is healthy as ton miles are growing, driven by global infrastructure stimulus projects.”
In August and September 2020, we drew down $268.4 million in aggregate under sale and leaseback agreements with i) China Merchants Bank Leasing (“CMBL”) for the vessels M/V Laura, M/V Idee Fixe, M/V Roberta, M/V Kaley, M/V Star Sirius and M/V Star Vega, ii) Shinken Bussan Co., Ltd. for the vessel M/V Star Lutas, iii) SPDB Financial Leasing Co., Ltd. for the vessels M/V Mackenzie, M/V Kennadi, M/V Honey Badger, M/V Wolverine and M/V Star Antares and iv) ICBC Financial Leasing Co., Ltd. for the vessels M/V Gargantua, M/V Goliath and M/V Maharaj. The amount drawn was used in part to refinance the $191.9 million outstanding under the loan and lease agreements secured by the above-mentioned vessels.
As of the date of this press release, after the completion of the above mentioned refinancings and along with the amounts drawn in July 2020, and after deducting relevant finance fees we increased our cash by approximately $106.5 million.
In addition, in September 2020, we received a commitment from China Export-Import Bank for a loan amount of up to $57.7 million (the “CEXIM Bank $57.7 million Facility”). The facility is expected to be used to refinance the outstanding amounts under a loan facility and lease agreements secured by the vessels M/V Star Wave, M/V Star Gina 2GR, M/V Star Charis and M/V Star Suzanna. We expect to draw down this facility by the end of November 2020. The facility will mature eight years after the drawdown and will be secured by first priority mortgages on the four aforementioned vessels. The facility is subject to customary conditions precedent and the execution of definitive documentation.
We expect to further strengthen our cash balance with net proceeds after finance fees of approximately $6.7 million by the end of November 2020 with the finalization of i) the CEXIM Bank $57.7 million Facility and ii) the agreement with CMBL to sell and leaseback the vessel M/V Diva.
As of the date of this press release, the outstanding balance under the $30.0 million revolving facility with HSBC France (the “HSBC Working Capital Facility”) is $24.2 million, while another $5.8 million remains available under this facility.
Hedging VLSFO-HSFO Spread
As of the date of this press release, we have hedged approximately 8,000 metric tons of our estimated fuel consumption for November and December 2020 by selling the 2020 Singapore spread between Very Low-Sulfur Fuel Oil (VLSFO) – High-Sulfur Fuel Oil (HSFO) at an average price of $266 per ton.
Impact of COVID-19 and Our Proactive Measures
While it is still too early to fully assess the overall impact that COVID-19 will have on our financial condition and operations and on the dry bulk industry in general, to date we have identified the following adverse effects of the COVID-19 pandemic on our business:
• Significant reduction in market charter rates, as a result of the decreased demand for dry bulk commodities and the uncertainty with regard to the timing of a return to more normalized global trade patterns.
• Potential adverse impact on asset values reflecting the weaker freight markets environment and lack of liquidity in the second-hand market. Star Bulk is fully compliant with all its financial covenants as of the end of the nine months ended September 30, 2020.
• Significant delays and increased operational costs associated with crew rotation and related logistical complications, supplying our vessels with spares or other supplies, and the reduced availability of attending engineers for overhauling or maintenance due to travel restrictions and quarantine rules.
We have taken proactive measures to ensure the health and wellness of our crew and onshore employees while maintaining effective business continuity and the uninterrupted service to our customers.
Our business continuity plans onshore for our global offices in Athens, Limassol, Singapore, New York, Oslo and Manilla, have allowed for an efficient transition to a remote working environment. Additionally, we have also placed a temporary ban on all non-essential travel by our employees.
The actual impact of these and other effects on our business, and the efficacy of any measures we take in response to the challenges presented by the COVID-19 pandemic, will depend on how the outbreak further develops, the duration and extent of the restrictive measures that are associated with the pandemic and their impact on global economy and trade.
Daily Time Charter Equivalent Rate (“TCE”) and TCE Revenues are non-GAAP measures. Please see the table at the end of this release for a reconciliation to Voyage Revenues, which is the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, as well as for the definition of the respective measures.
For the third quarter of 2020 our TCE rate was:
Capesize / Newcastlemax Vessels: $17,942 per day.
Post Panamax / Kamsarmax / Panamax Vessels: $11,354 per day.
Ultramax / Supramax Vessels: $10,306 per day.
For nine month period ended September 30, 2020 our TCE rate was:
Capesize / Newcastlemax Vessels: $15,327 per day.
Post Panamax / Kamsarmax / Panamax Vessels: $9,867 per day.
Ultramax / Supramax Vessels: $8,501 per day.
Amounts shown throughout the press release and variations in period–on–period comparisons are derived from the actual unaudited numbers in our books and records. Reference to per share figures below are based on 96,370,925 and 94,276,144 weighted average diluted shares for the third quarter of 2020 and 2019, respectively.
Third Quarter 2020 and 2019 Results
For the third quarter of 2020, we had a net income of $23.3 million, or $0.24 earnings per share. Net income for the third quarter of 2019 was $5.8 million, or $0.06 earnings per share.
Adjusted net income for the third quarter of 2020, which excludes certain non-cash items, was $27.3 million, or $0.28 earnings per share, compared to an adjusted net income for the third quarter of 2019 of $17.3 million, or $0.18 earnings per share.
Net cash provided by operating activities for the third quarter of 2020 was $57.0 million, compared to net cash provided by operating activities of $27.7 million for the third quarter of 2019. Adjusted EBITDA for the third quarter of 2020, which excludes certain non-cash items was $79.7 million, compared to adjusted EBITDA for the third quarter of 2019 of $72.2 million.
Voyage revenues for the third quarter of 2020 decreased to $200.2 million from $248.4 million in the third quarter of 2019. Adjusted time charter equivalent revenues (“Adjusted TCE Revenues”) (please see the table at the end of this release for the calculation of the Adjusted TCE Revenues) were $137.6 million for the third quarter of 2020, compared to $131.0 million for the third quarter of 2019. The negative impact of the COVID-19 pandemic led to an overall weak dry bulk market environment. As a result, TCE rate for the third quarter of 2020 was $13,083 compared to $14,688 for the third quarter of 2019.
For the third quarters of 2020 and 2019, vessel operating expenses were $47.2 million and $39.7 million, respectively. Vessel operating expenses for the third quarter of 2020 included additional crew expenses related to the increased number of crew changes performed during the period as a result of COVID-19 restrictions imposed in the beginning of 2020 of $1.9 million. Vessel operating expenses for the third quarter of 2019 included pre-delivery and pre-joining expenses of $0.3 million. Our average daily operating expenses per vessel for the third quarters of 2020 and 2019 were $4,425 and $3,719, respectively. Excluding non-recurring expenses such the increased costs due to the COVID-19 pandemic in 2020 or the pre-delivery expenses in 2019, our average daily operating expenses per vessel for the third quarters of 2020 and 2019 were $4,244 and $3,693, respectively.
General and administrative expenses for the third quarters of 2020 and 2019 were $9.3 million and $9.7 million, respectively. The decrease is mainly attributable to the decrease in stock based compensation expense to $3.1 million in the third quarter of 2020 from $3.5 million in the third quarter of 2019. Vessel management fees for the third quarters of 2020 and 2019 were both $4.6 million. Our average daily net cash general and administrative expenses per vessel (including management fees and excluding stock-based compensation) for the third quarters of 2020 and 2019 were $985 and $828, respectively.
Interest and finance costs net of interest and other income/(loss) for the third quarters of 2020 and 2019 were $16.2 million and $22.5 million, respectively. Despite the increase in the weighted average balance of our outstanding indebtedness of $1,601.1 million during the third quarter of 2020, compared to $1,572.5 million for the same period in 2019, the interest and finance costs net of interest and other income/ (loss) decreased due to the decrease in the average interest rate on our outstanding indebtedness, mainly driven by the refinancing of certain of our debt agreements, the interest rate swap agreements that we entered into during the second and third quarters of 2020 and the lower LIBOR rates during the third quarter of 2020.
EBITDA and Adjusted EBITDA Reconciliation
We include EBITDA herein since it is a basis upon which we assess our liquidity position. It is also used by our lenders as a measure of our compliance with certain loan covenants and we believe that it presents useful information to investors regarding our ability to service and/or incur indebtedness.
To derive Adjusted EBITDA from EBITDA, we excluded non-cash gains/(losses) such as those related to sale of vessels, stock-based compensation expense, the write-off of the unamortized fair value of above/below market acquired time charters, impairment losses, the write-off of claims receivable and loss from bad debt, change in fair value of forward freight agreements and bunker swaps, provision for onerous contracts, and the equity in income/(loss) of investee, if any, which may vary from period to period and for different companies and because these items do not reflect operational cash inflows and outflows of our fleet. In addition, together with our scrubber installation program, we decided to bring forward to 2019 the majority of 2020 dry docking services; thus, in the Adjusted EBITDA calculation for 2019 we included only the dry docking expenses for the vessels which were due for their periodic dry dock during 2019. 2020 Adjusted EBITDA does not include the drydocking expenses for the vessels which were due for their periodic dry dock in 2020 but this was performed in 2019.
EBITDA and Adjusted EBITDA do not represent and should not be considered as alternatives to cash flow from operating activities or net income, as determined by United States generally accepted accounting principles, or U.S. GAAP, and our calculation of EBITDA and Adjusted EBITDA may not be comparable to that reported by other companies due to differences in methods of calculation.
Net income/(Loss) and Adjusted Net income/(Loss) Reconciliation and calculation of Adjusted Earnings/(Loss) Per Share
To derive Adjusted Net Income and Adjusted Earnings/(Loss) Per Share from Net Income, we excluded non-cash items, as provided in the table below. We believe that Adjusted Net Income and Adjusted Earnings/(Loss) Per Share assist our management and investors by increasing the comparability of our performance from period to period since each such measure eliminates the effects of such non-cash items as gain/(loss) on sale of assets, unrealized gain/(loss) on derivatives, impairment losses and other items which may vary from year to year, for reasons unrelated to overall operating performance. Similarly, with what was discussed above, we excluded from the Adjusted Income/(loss) and Adjusted Earnings/(loss) per share the accelerated dry docking expenses that were due in 2020. In addition, we believe that the presentation of the respective measure provides investors with supplemental data relating to our results of operations, and therefore, with a more complete understanding of factors affecting our business than with GAAP measures alone. Our method of computing Adjusted Net Income and Adjusted Earnings/ (Loss) Per Share may not necessarily be comparable to other similarly titled captions of other companies due to differences in methods of calculation.