Third consecutive profitable quarter for Star Bulk

Pappas

Star Bulk, a global shipping company focusing on the transportation of dry bulk cargoes, announced its unaudited financial and operating results for the second quarter and the first half of 2018.

Financial Highlights

(Expressed in thousands of U.S. dollars,

except for daily rates and per share data)

Second quarter 2018 Second quarter 2017 Six months ended June 30, 2018 Six months ended June 30, 2017
Voyage Revenues $ 132,604 $ 78,605 $ 253,661 $ 143,471
Net income/(loss) $ 10,728 $ (10,279 ) $ 20,628 $ (26,229 )
EBITDA (1) $ 49,388 $ 22,665 $ 93,837 $ 37,039
Adjusted EBITDA (1) $ 52,028 $ 25,731 $ 98,450 $ 43,806
Adjusted Net income / (loss)  (2) $ 13,377 $ (7,643 ) $ 25,236 $ (20,515 )
Earnings / (loss) per share basic $ 0.17 $ (0.16 ) $ 0.32 $ (0.42 )
Earnings / (loss) per share diluted $ 0.17 $ (0.16 ) $ 0.32 $ (0.42 )
Adjusted earnings / (loss) per share basic and diluted (2) $ 0.21 $ (0.12 ) $ 0.39 $ (0.33 )
Average Number of Vessels   73.5   69.5   72.8   68.4
TCE Revenues (3) $ 89,991 $ 61,074 $   171,588 $   110,086
Daily Time Charter Equivalent Rate (“TCE”) (3) $ 13,567 $ 9,747 $ 13,082 $ 8,968
Fleet utilization 99.3 % 99.1 % 99.6 % 99.1 %
Average daily OPEX per vessel (excluding pre-delivery expenses) (4) $ 3,996 $ 3,880 $ 3,993 $ 3,914
Average daily Net Cash G&A expenses per vessel (excluding one-time expenses) (5) $ 1,072 $ 1,101 $ 1,086 $ 1,109

  • EBITDA and Adjusted EBITDA are non-GAAP measures. Please see the table at the back of this release for a reconciliation of EBITDA and Adjusted EBITDA 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 from EBITDA, we exclude non-cash gains / (losses).
  • Adjusted Net income / (loss) and Adjusted earnings / (loss) per share basic and diluted are non-GAAP measures. Please see the table at the back of this release for a reconciliation to Net income / (loss), which is the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP.
  • Daily Time Charter Equivalent Rate (“TCE”) and TCE Revenues are non-GAAP measures. Please see the table at the back 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.
  • Average daily OPEX per vessel is calculated by dividing vessel operating expenses by Ownership days.
  • A verage daily Net Cash G&A expenses per vessel is calculated by (1) deducting the Management fee Income from, and (2) adding the Management fee expense to, the General and Administrative expenses (net of stock-based compensation expense) and (3) then dividing the result by the sum of Ownership days and Charter-in days.

Petros Pappas, Chief Executive Officer of Star Bulk, commented:

“We are pleased to report the third consecutive profitable quarter, where we achieved $90.0 million in TCE Revenues, $52.0 million in Adjusted EBITDA and $13.4 million in Adjusted Net Income for Q2 2018. Our average TCE for the quarter continued to increase quarter on quarter to $13,567/ day per vessel, while daily Opex and Net Cash G&A expenses per vessel were held at $3,996/day and $1,072/day respectively. As of today, we have fixed 60% of Q3 2018 days at average TCE rates of $13,882 / day.

We are happy to have closed all three of our recently announced acquisitions adding 34 high quality vessels with an average age of 5.2 years and average size of 119,105 dwt. Our Board of Directors has been enhanced with the addition of Raffaele Zagari and Arne Blystad, while Herman Billung has joined our management team.

We are optimistic about market fundamentals of the industry given the strengthening rate and asset value environment. Dry bulk supply is presently expanding at the lowest pace of the last decade while demand is supported by healthy ton-mile growth due to continued Chinese demand for higher quality raw materials. Our Company is positioning itself to take advantage of a firming market and deliver value to its shareholders.”

Recent Developments

Acquisitions

  • On June 28, 2018, we closed the previously announced acquisition of three newbuilding Newcastlemax dry bulk vessels (“OCC Vessel Purchase Transaction”), from Oceanbulk Container Carriers LLC (“OCC”), an entity affiliated with Oaktree Capital Management, L.P. (“Oaktree”) and with family members of our CEO, Mr. Petros Pappas (“Pappas Shareholders”). The final consideration for the OCC Vessel Purchase Transaction was 3.3 million of our common shares. The three vessels are being constructed at Shanghai Waigaoqiao Shipbuilding Co. (“SWS”), with expected delivery dates in the first half of 2019. CSSC (Hong Kong) Shipping Company Limited has agreed to provide $104.4 million to finance the remaining $103.8 million capital expenditure of the three vessels via a ten-year capital lease.
  • On July 6, 2018 we closed the previously announced acquisition of 15 operating dry bulk vessels (the “Songa Vessels”) from Songa Bulk ASA (“Songa”) for an aggregate of 13.7 million of our common shares (the “Songa Consideration Shares”) and $145.0 million in cash (the “Songa Vessel Purchase Transaction”). The cash portion of the consideration was financed through proceeds of a new five-year capital lease of $180.0 million with China Merchants Bank Leasing, thus offering approximately $35.0 million of additional liquidity. Following the closing of the Songa Vessel Purchase Transaction, Mr. Arne Blystad was appointed to our Board of Directors as Class C Director and Mr. Herman Billung joined our management team as Senior Vice President. As part of this transaction, we commenced trading on the Oslo Stock Exchange under the ticker “SBLK R” on July 16, 2018. The Songa Consideration Shares will be restricted from trading in the U.S. for a period of six months following the distribution of the Songa Consideration Shares to the shareholders of Songa, unless they are sold pursuant to a transaction exempt from, or not subject to, registration under the Securities Act of 1933, as amended (the “Act”). The offer and sale of the Songa Consideration Shares will not be registered under the Act, and they may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements under the Act.
  • On August 3, 2018, we closed the previously announced acquisition of 16 operating dry bulk vessels (the “Augustea Vessels”) from entities affiliated with Augustea Atlantica SpA and York Capital Management in an all-share transaction (the “Augustea Vessel Purchase Transaction”). An entity affiliated with family members of our CEO, Mr. Petros Pappas, is a passive minority investor in three of the Augustea Vessels. Following the completion of this transaction, Mr. Raffaele Zagari was appointed to our Board of Directors. The final consideration for the Augustea Vessel Purchase Transaction was 10.3 million common shares of the Company. As part of this transaction, we assumed debt of approximately $309.0 million.

Following the consummation of all three transactions above, we have 91,521,052 common shares outstanding as of the date of this press release.

Financing Activities

  • In July, 2018, we entered into a committed term-sheet with HSBC Bank plc for a loan of $80.0 million (or the “HSBC $80,000 Facility”), to refinance the full amounts outstanding under the HSBC$86,600 Facility and the HSH $64,500 Facility (each as defined in the 2017 20-F). The loan will be secured by a first priority mortgage on the vessels previously pledged under the two refinanced facilities. We expect to draw down the loan amount of $80.0 million in the third quarter of 2018. The loan will be repayable in 20 equal quarterly installments of $2.4 million and a balloon payment along with the last installment in an amount of $32.4 million. The completion of the transaction is subject to the execution of customary definitive documentation.
  • On July 27, 2018, we paid an aggregate amount of $22.7 million in total to all parties under our Supplemental Agreements (as defined in the 2017 20-F) pursuant to the cash sweep mechanism in the Supplemental Agreements.

Capital Markets’ Activities

  • On June 26, 2018, we announced a secondary public offering of 5,000,000 of our common shares held by a fund affiliated with Oaktree Capital Management, L.P. The offering closed on June 29, 2018 at a price of $13.10 per share. The Company did not sell any common shares and did not receive any proceeds as a result of this offering.

Employment update

As of today, we have fixed employment for approximately 60% of the days in Q3 2018 at average TCE rates of $13,882 per day.

More specifically:

Capesize Vessels: approximately 46% of Q3 2018 days at $19,848 per day.

Panamax Vessels: approximately 64% of Q3 2018 days at $12,252 per day.

Supramax Vessels: approximately 70% of Q3 2018 days at $11,689 per day.

Existing On the Water Fleet (As of August 7, 2018)

Vessel Name Vessel Type Capacity

(dwt.)

Year Built Date Delivered to Star Bulk
1 Goliath Newcastlemax 209,537 2015 July-15
2 Gargantua Newcastlemax 209,529 2015 April-15
3 Star Poseidon Newcastlemax 209,475 2016 February-16
4 Maharaj Newcastlemax 209,472 2015 July-15
5 ABOY Sienna (1) Newcastlemax 208,000 2017 August-18
6 ABOY Laetitia (1) Newcastlemax 208,000 2017 August-18
7 ABOY Karlie (1) Newcastlemax 208,000 2016 August-18
8 Star Leo (1) Newcastlemax 207,939 2018 May-18
9 Star Ariadne (1) Newcastlemax 207,812 2017 March-17
10 Star Virgo (1) Newcastlemax 207,810 2017 March-17
11 Star Libra (1) Newcastlemax 207,765 2016 June-16
12 Star Marisa (1) Newcastlemax 207,709 2016 March-16
13 Star Eleni (1) Newcastlemax 207,555 2018 January-18
14 Star Magnanimus (1) Newcastlemax 207,490 2018 March-18
15 Leviathan Capesize 182,511 2014 September-14
16 Peloreus Capesize 182,496 2014 July-14
17 Songa Claudine (1) Capesize 181,258 2011 July-18
18 Songa Opus (1) Capesize 180,706 2010 July-18
19 Star Martha Capesize 180,274 2010 October-14
20 Star Pauline Capesize 180,274 2008 December-14
21 Pantagruel Capesize 180,181 2004 July-14
22 Star Borealis Capesize 179,678 2011 September-11
23 Star Polaris Capesize 179,600 2011 November-11
24 Songa Mountain (1) Capesize 179,150 2009 July-18
25 ABY Scarlett Capesize 178,000 2014 August-18
26 Star Angie Capesize 177,931 2007 October-14
27 Big Fish Capesize 177,662 2004 July-14
28 Kymopolia Capesize 176,990 2006 July-14
29 Star Triumph Capesize 176,343 2004 December-17
30 ABYO Audrey Capesize 175,125 2011 August-18
31 Big Bang Capesize 174,109 2007 July-14
32 Star Aurora Capesize 171,199 2000 September-10
33 Paola Mini-Capesize 115,259 2011 August-18
34 ABML Eva Mini-Capesize 106,659 2011 August-18
35 Amami Post Panamax 98,681 2011 July-14
36 Madredeus Post Panamax 98,681 2011 July-14
37 Star Sirius Post Panamax 98,681 2011 March-14
38 Star Vega Post Panamax 98,681 2011 February-14
39 Piera Post-Panamax 91,951 2010 August-18
40 Maria Laura Prima Post Panamax 91,945 2010 August-18
41 Aphrodite Post Panamax 91,827 2011 August-18
42 Songa Hirose (1) Kamsarmax 83,494 2011 July-18
43 ABY Jeannette Kamsarmax 83,000 2014 August-18
44 Star Angelina Kamsarmax 82,981 2006 December-14
45 Star Gwyneth Kamsarmax 82,790 2006 December-14
46 Star Kamila Kamsarmax 82,769 2005 September-14
47 Songa Genesis (1) Kamsarmax 82,705 2010 July-18
48 Songa Maru (1) Kamsarmax 82,687 2008 July-18
49 Songa Grain (1) Kamsarmax 82,672 2008 July-18
50 Pendulum Kamsarmax 82,619 2006 July-14
51 Star Maria Kamsarmax 82,598 2007 November-14
52 Star Markella Kamsarmax 82,594 2007 September-14
53 Star Danai Kamsarmax 82,574 2006 October-14
54 Star Georgia Kamsarmax 82,298 2006 October-14
55 Star Sophia Kamsarmax 82,269 2007 October-14
56 Star Mariella Kamsarmax 82,266 2006 September-14
57 Star Moira Kamsarmax 82,257 2006 November-14
58 Star Nina Kamsarmax 82,224 2006 January-15
59 Star Renee Kamsarmax 82,221 2006 December-14
60 Star Nasia Kamsarmax 82,220 2006 August-14
61 Star Laura Kamsarmax 82,209 2006 December-14
62 Star Jennifer Kamsarmax 82,209 2006 April-15
63 Star Helena Kamsarmax 82,187 2006 December-14
64 Songa Moon (1) Kamsarmax 82,158 2012 July-18
65 Songa Hadong (1) Kamsarmax 82,158 2012 July-18
66 ABY Asia (1) Kamsarmax 82,000 2017 August-18
67 Songa Devi (1) Kamsarmax 81,918 2014 July-18
68 Star Charis Kamsarmax 81,711 2013 March-17
69 Star Suzanna Kamsarmax 81,711 2013 May-17
70 Mercurial Virgo Kamsarmax 81,545 2013 July-14
71 Songa Delmar (1) Kamsarmax 81,501 2011 July-18
72 Songa Sky (1) Kamsarmax 81,466 2010 July-18
73 Lydia Cafiero Kamsarmax 81,187 2013 August-18
74 Nicole Kamsarmax 81,120 2013 August-18
75 ABY Virginia Kamsarmax 81,000 2015 August-18
76 Songa Flama (1) Kamsarmax 80,448 2011 July-18
77 Star Iris Panamax 76,466 2004 September-14
78 Star Emily Panamax 76,417 2004 September-14
79 Idee Fixe (1) Ultramax 63,458 2015 March-15
80 Roberta (1) Ultramax 63,426 2015 March-15
81 Laura (1) Ultramax 63,399 2015 April-15
82 Kaley (1) Ultramax 63,283 2015 June-15
83 Kennadi Ultramax 63,262 2016 January-16
84 Mackenzie Ultramax 63,226 2016 March-16
85 Songa Wave (1) Ultramax 61,491 2017 July-18
86 Star Challenger Ultramax 61,462 2012 December-13
87 Star Fighter Ultramax 61,455 2013 December-13
88 Star Lutas Ultramax 61,347 2016 January-16
89 Honey Badger Ultramax 61,320 2015 February-15
90 Wolverine Ultramax 61,292 2015 February-15
91 Star Antares Ultramax 61,258 2015 October-15
92 Star Acquarius Ultramax 60,916 2015 July-15
93 Star Pisces Ultramax 60,916 2015 August-15
94 ABY Monica Ultramax 60,000 2015 August-18
95 Songa Glory (1) Supramax 58,680 2012 July-18
96 Diva Supramax 56,582 2011 July-17
97 Strange Attractor Supramax 55,742 2006 July-14
98 Star Omicron Supramax 53,489 2005 April-08
99 Star Gamma Supramax 53,098 2002 January-08
100 Star Zeta Supramax 52,994 2003 January-08
101 Star Delta Supramax 52,434 2000 January-08
102 Star Theta Supramax 52,425 2003 December-07
103 Star Epsilon Supramax 52,402 2001 December-07
104 Star Cosmo Supramax 52,247 2005 July-08
105 Star Kappa Supramax 52,055 2001 December-07
Total dwt: 11,634,253

Newbuilding Vessels

Vessel Name Vessel Type Capacity

(dwt.)

Shipyard Expected delivery date
1 HN 1388 (1) Newcastlemax 208,000 SWS Jan-19
2 HN 1389 (1) Newcastlemax 208,000 SWS Feb-19
3 HN 1390 (1) Newcastlemax 208,000 SWS Apr-19
624,000

  • Subject to a bareboat charter with purchase obligation at the expiration of the bareboat term.

Second Quarter 2018 and 2017 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.

For the second quarter of 2018, time charter equivalent revenues (“TCE Revenues”) (total voyage revenues net of voyage expenses and charter-in hire expense) excluding Star Logistics (as further discussed in footnote 8 under the heading “Summary of Selected Data”) were $90.0 million, compared to $61.1 million for the second quarter of 2017. Total revenues for the second quarter of 2018 increased to $132.6 million from $78.6 million in the second quarter of 2017. This increase was primarily attributable to the significant rise in charter hire rates, which led to a TCE rate of $13,567 for the second quarter of 2018 compared to a TCE rate of $9,747 for the second quarter of 2017, representing a 39% increase. TCE Revenues also increased as a result of an increase in the average number of vessels in our fleet to 73.5 in the second quarter of 2018, up from 69.5 in the second quarter of 2017, which caused an increase in Available days for our fleet.

Absent the adoption of the new revenue recognition standard (ASC 606) in January 2018, which has only prospective application with no effect to prior year figures, our TCE rate for the second quarter of 2018 would have been $13,598.

For the second quarter of 2018, operating income was $27.3 million, which includes depreciation of $22.1 million. Operating income of $2.0 million for the second quarter of 2017 included depreciation of $20.7 million. Depreciation increased during the second quarter of 2018 due to a higher average number of vessels in our fleet.

Net income for the second quarter of 2018 was $10.7 million, or $0.17 earnings per share, basic and diluted, based on 64,233,289 weighted average basic shares and 64,633,668 weighted average diluted shares, respectively. Net loss for the second quarter of 2017 was $10.3 million, or $0.16 loss per share, basic and diluted, based on 63,336,657 weighted average basic and diluted shares.

Net income for the second quarter of 2018 mainly included the following non-cash items, other than depreciation expense:

  • Stock-based compensation expense of $3.9 million, or $0.06 per share, basic and diluted, recognized in connection with common shares granted to our directors and employees; and
  • Unrealized gain on forward freight agreements and bunker swaps of $1.3 million, or $0.02 per share, basic and diluted.

Net loss for the second quarter of 2017, mainly included the following non-cash items, other than depreciation expense:

  • Stock based compensation expense of $3.7 million, or $0.06 per share, basic and diluted, recognized in connection with common shares granted to our directors and employees;
  • Unrealized gain on forward freight agreements of $0.7 million, or $0.01 per share, basic and diluted; and
  • Unrealized gain on interest rate swaps of $0.4 million or $0.006 per share, basic and diluted.

Adjusted net income for the second quarter of 2018, which excludes major non-cash items other than depreciation expense, was $13.4 million, or $0.21 earnings per share, basic and diluted, compared to adjusted net loss of $7.6 million, or $0.12 loss per share, basic and diluted, for the second quarter of 2017. A reconciliation of Net income / (loss) to Adjusted Net income/ (loss) and Adjusted earnings / (loss) per share basic and diluted is set forth below in the financial tables contained in this release.

Adjusted EBITDA for the second quarter of 2018 and 2017, which excludes all non-cash items, was $52.0 million and $25.7 million, respectively. A reconciliation of EBITDA and Adjusted EBITDA to net cash provided by/(used in) operating activities is set forth below in the financial tables contained in this release.

For the second quarter of 2018 and 2017, vessel operating expenses were $27.4 million and $25.1 million, respectively. This increase was primarily due to the increase in the average number of vessels from 69.5 to 73.5. Vessel operating expenses for the second quarter of 2018 include pre-delivery and pre-joining expenses of $0.7 million incurred mainly in connection with the delivery of the Star Magnanimus and Star Leo, which were delivered in March and May 2018, respectively. For the second quarter of 2017 operating expenses included pre-delivery and pre-joining expenses of $0.6 million. Excluding these expenses, our average daily operating expenses per vessel for the second quarter of 2018 were $3,996, vs. $3,880 for the same period in 2017.

Dry docking expenses for the second quarters of 2018 and 2017 were $2.1 million and $1.9 million, respectively. During the second quarter of 2018, two of our vessels underwent their periodic dry docking surveys, while during the second quarter of 2017, three of our vessels underwent their periodic dry docking surveys, one of which had started during the first quarter of 2017.

General and administrative expenses for the second quarters of 2018 and 2017 were $10.4 million and $9.3 million, respectively. The formation of our new subsidiary, Star Logistics, and a higher EUR/USD exchange rate during the second quarter of 2018 compared to the corresponding period in 2017 resulted in higher wage expenses, and thus had a negative effect on our general and administrative expenses. Additionally, general and administrative expenses for the second quarter of 2018 include stock-based compensation expense of $3.9 million. During the same quarter of 2017, general and administrative expenses included stock-based compensation expense of $3.7 million and legal fees of $0.4 million in connection with the restructuring of our indebtedness. Excluding these costs, our average daily net cash general and administrative expenses per vessel (including management fees) for the second quarter of 2018 were reduced to $1,072 from $1,101, during the second quarter of 2017.

Charter-in hire expense for the second quarters of 2018 and 2017 was $24.3 million and $0.9 million, respectively. The increase in charter-in hire expense was due to an increase in charter-in days from 91 in the second quarter of 2017, attributable to charter-in of the vessel Astakos, to 1,157 in the second quarter of 2018, attributable to the activities of our new subsidiary Star Logistics, which was created in the fourth quarter of 2017 to connect the origination and the destination of dry bulk commodities.

Interest and finance costs net of interest and other income/ (loss) for the second quarters of 2018 and 2017 were $16.6 million and $12.0 million, respectively. The increase is attributable to the increase in (i) LIBOR between the corresponding periods, (ii) the weighted average balance of our outstanding indebtedness of $1,063.4  million during the second quarter of 2018 compared to $1,038.4 million for the same period in 2017 and (iii) the negative effect of exchange rates on our time deposits held in Euros due to unfavorable movement in EUR/USD exchange rates during the second quarter of 2018 compared to the corresponding period in 2017, partially offset by higher interest income earned due to higher outstanding cash balances held in time deposits during the respective periods.

First Half 2018 and 2017 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.

For the first half of 2018, time charter equivalent revenues (“TCE Revenues”) (total voyage revenues net of voyage expenses and charter-in hire expense) excluding Star Logistics (as further discussed in footnote 8 under the heading “Summary of Selected Data”) were $171.6 million, compared to $110.1 million for the first half of 2017. Total revenues for the first half of 2018 increased to $253.7 million from $143.5 million in the corresponding period in 2017. This increase was primarily attributable to the significant rise in charter hire rates, which led to a TCE rate of $13,082 for the first half of 2018 compared to a TCE rate of $8,968 for the first half of 2017, representing a 46% increase. TCE Revenues also increased as a result of an increase in the average number of vessels in our fleet to 72.8 in the first half of 2018, up from 68.4 in the first half of 2017, which caused an increase in Available days for our fleet.

Absent the adoption of the new revenue recognition standard (ASC 606) in January 2018, which has only prospective application with no effect to prior year figures, our TCE rate for the first half of 2018 would have been $13,022.

For the first half of 2018, operating income was $50.5 million, which includes depreciation of $43.2 million. Operating loss of $3.3 million for the first half of 2017 included depreciation of $40.4 million and a net loss on sale of vessels of $0.4 million. Depreciation increased during the first half of 2018 due to a higher average number of vessels in our fleet.

Net income for the first half of 2018 was $20.6 million, or $0.32 earnings per share, basic and diluted, based on 64,170,654 weighted average basic shares and 64,468,860 weighted average diluted shares, respectively. Net loss for the first half of 2017 was $26.2 million, or $0.42 loss per share, basic and diluted, based on 62,188,645 weighted average basic and diluted shares.

Net income for the first half of 2018 mainly included the following non-cash items, other than depreciation expense:

  • Stock-based compensation expense of $5.0 million, or $0.08 per share, basic and diluted, recognized in connection with common shares granted to our directors and employees; and
  • Unrealized gain on forward freight agreements and bunker swaps of $0.3 million, or $0.01 per share, basic and diluted.

Net loss for the first half of 2017, mainly included the following non-cash items, other than depreciation expense:

  • Stock based compensation expense of $6.4 million, or $0.10 per share, basic and diluted, recognized in connection with common shares granted to our directors and employees;
  • Loss on sale of vessel of $0.4 million, or $0.01 per share, basic and diluted, in connection with the sale of Star Eleonora in March 2017;
  • Unrealized gain on interest rate swaps of $1.4 million or $0.02 per share, basic and diluted; and
  • Write-off of unamortized deferred finance charges of $0.4 million or $0.01 per share, basic and diluted, in connection with the cancellation of a previous loan commitment.

Adjusted net income for the first half of 2018, which excludes major non-cash items other than depreciation expense, was $25.2 million, or $0.39 earnings per share, basic and diluted, compared to adjusted net loss of $20.5 million, or $0.33 loss per share, basic and diluted, for the first half of 2017. A reconciliation of Net income / (loss) to Adjusted Net income/ (loss) and Adjusted earnings / (loss) per share basic and diluted is set forth below in the financial tables contained in this release.

Adjusted EBITDA for the first half of 2018 and 2017, which excludes all non-cash items, was $98.5 million and $43.8 million, respectively. A reconciliation of EBITDA and Adjusted EBITDA to net cash provided by/(used in) operating activities is set forth below in the financial tables contained in this release.

For the first half of 2018 and 2017, vessel operating expenses were $53.7 million and $49.6 million, respectively. This increase was primarily due to the increase in the average number of vessels from 68.4 to 72.8. Vessel operating expenses for the first half of 2018 and 2017 include pre-delivery and pre-joining expenses of $1.1 million in both periods incurred mainly in connection with the delivery of the new vessels in our fleet during each period. Excluding these expenses, our average daily operating expenses per vessel for the first half of 2018 were $3,993, compared to $3,914 in the same period in 2017.

Dry docking expenses for the first half of 2018 and 2017 were $3.3 million and $3.2 million, respectively. During the first half of 2018, two of our vessels underwent their periodic dry docking surveys, while during the first half of 2017, four of our vessels underwent their periodic dry docking surveys, three of which were completed during this period. However, additional dry docking expenses were incurred during the first half of 2018, due to upcoming dry docking surveys in the second half of 2018.

General and administrative expenses for the first half of 2018 and 2017 were $17.7 million and $17.3 million, respectively. The formation of our new subsidiary, Star Logistics, and a higher EUR/USD exchange rate during the first half of 2018 compared to the corresponding period in 2017 resulted in higher wage expenses, and thus had a negative effect on our general and administrative expenses. Additionally, general and administrative expenses for the first half of 2018 include stock-based compensation expense of $5.0 million. During the same period in 2017, general and administrative expenses included stock-based compensation expense of $6.4 million and legal fees of $0.7 million in connection with the restructuring of our indebtedness. Excluding these expenses, our average daily net cash general and administrative expenses per vessel (including management fees) for the first half of 2018 were reduced to $1,086 from $1,109, during the first half 2017.

During the first half of 2017, we recognized other operational gain of $2.5 million resulting from the settlement proceeds of a commercial dispute.

During the first half of 2017, we recognized a net loss of $0.4 million, in connection with the sale of Star Eleonora.

Charter-in hire expense for the first half of 2018 and 2017 was $40.8 million and $1.7 million, respectively. The increase in charter-in hire expense was due to an increase in charter-in days from 181 in the first half of 2017, attributable to charter-in of the vessel Astakos, to 2,085 in the first half of 2018, attributable to the activities of our new subsidiary Star Logistics, which was created in the fourth quarter of 2017 to connect the origination and the destination of dry bulk commodities.

Interest and finance costs net of interest and other income/ (loss) for the first half of 2018 and 2017 were $29.9 million and $22.5 million, respectively. The increase is attributable to the increase in (i) LIBOR between the corresponding periods, (ii) the weighted average balance of our outstanding indebtedness of $1,054.3  million during the first half of 2018 compared to $1,007.5 million for the same period in 2017 and (iii) the negative effect of exchange rates on our time deposits held in Euros due to unfavorable movement in EUR/USD exchange rates during the second quarter of 2018 compared to the corresponding period in 2017, partially offset by higher interest income earned due to higher outstanding cash balances held in time deposits during the respective periods.

Liquidity and Capital Resources

Cash Flows

Net cash provided by operating activities for the first half of 2018 was $61.1 million, whereas net cash provided by operating activities for the first half of 2017 was $20.1 million.

The positive change was due to the significant recovery of the dry bulk market during the first half of 2018, which resulted in a significantly higher TCE rate of $13,082 compared to $8,968 for the first half of 2017 and is also reflected in the increase of Adjusted EBITDA to $98.5 million for the first half of 2018 from $43.8 million for the corresponding period in 2017. This positive effect was partially offset by (i) a net working capital outflow of $6.9 million during the first half of 2018 compared to a net working capital outflow of $1.7 million for the first half of 2017 and (ii) by higher net interest expense for the first half 2018 compared to the corresponding period in 2017.

Net cash used in investing activities for the first half of 2018 and 2017 was $115.6 million and $109.0 million, respectively.

For the first half of 2018, net cash used in investing activities mainly consisted of $115.9 million paid for advances and other capitalized expenses for our newbuilding and newly delivered vessels delivered during the period.

For the first half of 2017, net cash used in investing activities consisted of:

  • $116.7 million paid for advances and other capitalized expenses for our newbuilding and newly delivered vessels;

offset partially by:

  • $7.7 million of proceeds from the sale of vessels.

Net cash provided by financing activities for the first half of 2018 and 2017 was $21.5 million and $140.6 million, respectively.

For the first half of 2018, net cash provided by financing activities mainly consisted of:

  • $100.0 million increase in lease obligations, relating to three delivered newbuilding vessels, under bareboat charters; and
  • $30.0 million of proceeds drawn under the newly entered loan facility with the National Bank of Greece to refinance an existing facility with Commerzbank;

offset partially by:

  • $108.7 million paid in aggregate in connection with: (i) the regular amortization of outstanding vessel financings and  capital lease installments of $43.1 million and (iii) $65.6 million of excess cash for the quarters ended December 31, 2017 and March 31, 2018, paid pursuant to the cash sweep mechanism in our Supplemental Agreements, during the first half 2018.

For the first half of 2017, net cash provided by financing activities consisted of:

  • $79.9 million increase in capital lease obligations, relating to two delivered newbuilding vessels under bareboat charters;
  • $16.0 million of proceeds drawn under a loan facility for the financing of Star Charis and Star Suzanna, which were delivered to us during the period; and
  • $50.6 million of proceeds from a private placement of our common shares, which was completed in February 2017, which is net of aggregate private placement agent’s fees and expenses of $0.9 million;

offset partially by:

  • $5.2 million paid in aggregate in connection with the capital lease installments and the partial prepayment of a loan facility due to the sale of Star Eleonora; and
  • $0.7 million of financing fees, paid in connection with the restructuring of our indebtedness.

Summary of Selected Data

(TCE rates expressed in U.S. dollars)
Second quarter 2018 Second quarter 2017
Average number of vessels (1) 73.5 69.5
Number of vessels (2) 74 70
Average age of operational fleet (in years) (3)   8.3 7.8
Ownership days (4) 6,691 6,326
Available days (5) 6,633 6,266
Charter-in days (6) 1,157   91
Fleet utilization (7) 99.3 % 99.1 %
Daily Time Charter Equivalent Rate (8) $ 13,567 $ 9,747
Average daily OPEX per vessel (9) $ 4,096 $ 3,975
Average daily OPEX per vessel (excl. pre-delivery expenses) $ 3,996 $ 3,880
Average daily Net Cash G&A expenses per vessel (excluding one-time expenses) (10) $ 1,072 $ 1,101
Six months ended June 30, 2018 Six months ended June 30, 2017
Average number of vessels (1) 72.8 68.4
Number of vessels (2) 74 70
Average age of operational fleet (in years) (3)   8.3 7.8
Ownership days (4) 13,174 12,384
Available days (5) 13,116 12,275
Charter-in days (6) 2,085 181
Fleet utilization (7) 99.6 % 99.1 %
Daily Time Charter Equivalent Rate (8) $ 13,082 $ 8,968
Average daily OPEX per vessel (9) $ 4,075 $ 4,002
Average daily OPEX per vessel (excl. pre-delivery expenses) $ 3,993 $ 3,914
Average daily Net Cash G&A expenses per vessel (excluding one-time expenses) (10) $ 1,086 $ 1,109

  • Average number of vessels is the number of vessels that constituted our owned fleet for the relevant period, as measured by the sum of the number of days each operating vessel was a part of our owned fleet during the period divided by the number of calendar days in that period.
  • As of the last day of the periods reported.
  • Average age of operational fleet is calculated as of the end of each period.
  • Ownership days are the total calendar days each vessel in the fleet was owned by us for the relevant period.
  • Available days for the fleet are the Ownership days after subtracting off-hire days for major repairs, dry docking or special or intermediate surveys and lay-up days, if any.
  • Charter-in days are the total days that we charter-in third-party vessels.
  • Fleet utilization is calculated by dividing (x) Available days plus Charter-in days by (y) Ownership days plus charter-in days for the relevant period.
  • Represents the weighted average daily TCE rates of our operating fleet (including owned fleet and fleet under charter-in arrangements). TCE rate is a measure of the average daily revenue performance of a vessel on a per voyage basis. Our method of calculating TCE rate is determined by dividing voyage revenues (net of voyage expenses and charter-in hire expense and amortization of fair value of above/below market acquired time charter agreements, if any) by Available days for the relevant time period. Voyage expenses primarily consist of port, canal and fuel costs that are unique to a particular voyage, which would otherwise be paid by the charterer under a time charter contract, as well as commissions. TCE rate is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance despite changes in the mix of charter types (i.e., voyage charters, time charters, bareboat charters and pool arrangements) under which its vessels may be employed between the periods. We include TCE revenues, a non-GAAP measure, as it provides additional meaningful information in conjunction with voyage revenues, the most directly comparable GAAP measure, and it assists our management in making decisions regarding the deployment and use of our operating vessels and assists investors and our management in evaluating our financial performance. The above reported TCE rates for the second quarter and the first half of 2018, were calculated excluding Star Logistics. We are excluding the revenues and expenses of Star Logistics because it was formed recently, in October 2017, and its revenues and expenses have not yet normalized and could have an effect on our TCE rates that could obscure material trends. As a result, we believe it is more informative to our investors to present the TCE rates excluding the revenues and expenses of Star Logistics until its revenues and expenses have normalized. For the detail calculation please see the table at the back of this release with the reconciliation of Voyage Revenues to TCE.
  • Average daily OPEX per vessel is calculated by dividing vessel operating expenses by Ownership days.
  • Average daily Net Cash G&A expenses per vessel is calculated by (1) deducting the Management fee Income from, and (2) adding the Management fee expense to, the General and Administrative expenses (net of stock-based compensation expense) and (3) then dividing by the Ownership days and Charter-in days.

Unaudited Consolidated Statement of Operations

(Expressed in thousands of U.S. dollars except for share and per share data) Second quarter 2018 Second quarter 2017 Six months ended June 30, 2018 Six months ended June 30, 2017
Revenues:
Voyage revenues $   132,604 $   78,605 $   253,661 $   143,471
Total revenues 132,604 78,605 253,661 143,471
Expenses:
Voyage expenses (19,891 ) (16,650 ) (42,586 ) (31,649 )
Charter-in hire expense (24,293 )   (881 ) (40,763 )   (1,736 )
Vessel operating expenses (27,408 ) (25,145 ) (53,681 ) (49,560 )
Dry docking expenses (2,149 ) (1,856 ) (3,269 ) (3,248 )
Depreciation (22,075 ) (20,742 ) (43,243 ) (40,387 )
Management fees (1,983 ) (1,875 ) (3,913 )   (3,689 )
General and administrative expenses (10,383 ) (9,284 ) (17,702 ) (17,316 )
Gain/(Loss) on forward freight agreements and bunker swaps   2,812   256 2,000   (541 )
Other operational loss   –   (751 )   – (751 )
Other operational gain   36   294   41 2,461
Gain/(Loss) on sale of vessels   –   –   – (370 )
Operating income/(loss) 27,270 1,971 50,545 (3,315 )
Interest and finance costs (16,065 ) (12,625 ) (30,338 ) (23,766 )
Interest and other income/(loss) (499 ) 603 394 1,223
Gain/(Loss) on derivative financial instruments   – (147 ) (1 ) 100
Loss on debt extinguishment   (21 )   – (21 ) (358 )
Total other expenses, net (16,585 ) (12,169 ) (29,966 ) (22,801 )
Income/(Loss) before equity in investee 10,685 (10,198 ) 20,579 (26,116 )
Equity in income/(loss) of investee 43 (29 ) 49 4
Income/(Loss) before taxes $   10,728 $   (10,227 ) $   20,628 $   (26,112 )
US Source Income taxes   –   (52 )   –   (117 )
Net income/(loss) $   10,728 $   (10,279 ) $   20,628 $   (26,229 )
Earnings/(loss) per share, basic $   0.17 $   (0.16 ) $   0.32 $   (0.42 )
Earnings/(loss) per share, diluted $   0.17 $   (0.16 ) $   0.32 $   (0.42 )
Weighted average number of shares outstanding, basic 64,233,289 63,336,657 64,170,654 62,188,645
Weighted average number of shares outstanding, diluted 64,633,668 63,336,657 64,468,860 62,188,645

Unaudited Consolidated Condensed Balance Sheets

(Expressed in thousands of U.S. dollars)
ASSETS June 30, 2018 December 31, 2017
Cash and cash equivalents $   218,651 $   257,911
Other current assets   69,635   54,715
TOTAL CURRENT ASSETS   288,286   312,626
Advances for vessels under construction and acquisition of vessels and other assets 46,480 48,574
Vessels and other fixed assets, net 1,896,020 1,775,081
Other non-current assets 12,532 9,483
TOTAL ASSETS $   2,243,318 $   2,145,764
Current portion of long-term debt and finance lease commitments $   142,856 $   189,306
Other current liabilities 38,894 29,968
TOTAL CURRENT LIABILITIES   181,750   219,274
Long-term debt and finance lease commitments non-current(net of unamortized deferred finance fees of $6,538 and $7,154, respectively) 858,205 789,878
Senior Notes (net of unamortized deferred finance fees of $1,797 and $2,000, respectively) 48,203 48,000
Other non-current liabilities 620 560
TOTAL LIABILITIES $   1,088,778 $   1,057,712
STOCKHOLDERS’ EQUITY 1,154,540 1,088,052
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $   2,243,318 $   2,145,764

Unaudited Cash Flow Data

(Expressed in thousands of U.S. dollars) Six months ended June 30, 2018 Six months ended June 30, 2017
Net cash provided by / (used in) operating activities $   61,087 $   20,120
Net cash provided by / (used in) investing activities   (115,592 )   (109,023 )
Net cash provided by / (used in) financing activities   21,501   140,563

EBITDA and Adjusted EBITDA Reconciliation

We consider EBITDA to represent net income before interest, income taxes, depreciation and amortization. EBITDA does not represent and should not be considered as an alternative to net income or cash flow from operating activities, as determined by United States generally accepted accounting principles, or U.S. GAAP, and our calculation of EBITDA may not be comparable to that reported by other companies. EBITDA is included herein because it is a basis upon which we assess our liquidity position, because it is a measure used by our lenders as a measure of our compliance with certain loan covenants and because we believe that it presents useful information to investors regarding our ability to service and/or incur indebtedness.

To derive Adjusted EBITDA from EBITDA and Adjusted Net income/(loss) from Net income/(loss), 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-market acquired time charters, impairment losses, the write-off of claims receivable,  change in fair value of forward freight agreements and bunker swaps and the equity in income/(loss) of investee, if any. We excluded the items described above when deriving Adjusted EBITDA and Adjusted Net income/(loss) because we believe that these items do not reflect the ongoing operational cash inflows and outflows of our fleet.

The following table reconciles net cash provided by operating activities to EBITDA and Adjusted EBITDA:

(Expressed in thousands of U.S. dollars) Second quarter

2018

Second quarter

2017

Six months ended

June 30, 2018

Six months ended

June 30, 2017

Net cash provided by/(used in) operating activities $ 29,505 $ 13,791 $ 61,087 $ 20,120
Net decrease / (increase)  in current assets 3,984 4,267 12,762 4,865
Net increase / (decrease) in operating  liabilities, excluding current portion of long term debt 1,076 (3,632 ) (5,955 ) (3,157 )
Loss on debt extinguishment (21 ) (21 ) (358 )
Stock – based compensation (3,949 ) (3,710 ) (5,011 ) (6,360 )
Amortization of deferred finance charges (691 ) (647 ) (1,367 ) (1,288 )
Unrealized and accrued gain/(loss) on derivative financial instruments 185 (269 ) 573 706
Unrealized gain / (loss) on forward freight agreements and bunker swaps 1,266 673 349 (41 )
Total other expenses, net 17,990 12,169 31,371 22,801
Income tax 52 117
Gain/(Loss) on sale of vessel (370 )
Equity in income/(loss) of investee 43 (29 ) 49 4
EBITDA $   49,388 $   22,665 $   93,837 $   37,039
Less:
Equity in income of investee (43 ) (49 ) (4 )
Unrealized gain on forward freight agreements and bunker swaps (1,266 ) (673 ) (349 )
Plus:
Stock-based compensation 3,949 3,710 5,011 6,360
Loss on sale of vessel 370
Unrealized loss on forward freight agreements and bunker swaps 41
Equity in loss of investee 29
Adjusted EBITDA $   52,028 $   25,731 $   98,450 $   43,806

Net income / (loss) and Adjusted Net income / (loss) Reconciliation

(Expressed in thousands of U.S. dollars) Second quarter

2018

Second quarter

2017

Six months ended

June 30, 2018

Six months ended

June 30, 2017

Net income / (loss) $   10,728 $   (10,279 ) $   20,628 $   (26,229 )
Stock – based compensation 3,949 3,710 5,011 6,360
Unrealized (gain) / loss on forward freight agreements and bunker swaps (1,266 ) (673 ) (349 ) 41
Unrealized (gain) / loss on derivative financial instruments (12 ) (411 ) (26 ) (1,374 )
(Gain) / loss on sale of vessel 370
Amortization of deferred gain from sale and leaseback (19 ) (37 )
Loss on debt extinguishment 21 21 358
Equity in income/(loss) of investee (43 ) 29 (49 ) (4 )
Adjusted Net income / (loss) $   13,377 $   (7,643 ) $   25,236 $   (20,515 )
Weighted average number of shares outstanding, basic 64,233,289 63,336,657 64,170,654 62,188,645
Weighted average number of shares outstanding, diluted 64,633,668 63,336,657 64,468,860 62,188,645
Adjusted Basic Earnings / (Loss) Per Share $   0.21 $   (0.12 ) $   0.39 $   (0.33 )
Adjusted Diluted Earnings / (Loss) Per Share $   0.21 $   (0.12 ) $   0.39 $   (0.33 )

Voyage Revenues to Daily Time Charter Equivalent (“TCE”) Reconciliation (please refer to the section “Summary of Selected Data” for the calculation method of TCE)

(In thousands of U.S. Dollars, except as otherwise stated)
Second quarter

2018

Second quarter

2017

Six months ended

June 30, 2018

Six months ended

June 30, 2017

Voyage revenues $   103,665 (a) $   78,605 $   201,620 (b) $   143,471
Less:
Voyage expenses (13,674 ) (c) (16,650 ) (30,032 ) (d) (31,649 )
Charter-in hire expenses   – (e) (881 )   – (f) (1,736 )
Time Charter equivalent revenues $   89,991 $   61,074 $   171,588 $   110,086
Available days for fleet   6,633 6,266 13,116 12,275
Daily Time Charter Equivalent Rate (“TCE”) $   13,567 $   9,747 $   13,082 $   8,968

  • Voyage revenues used to calculate TCE rate for the second quarter of 2018 consist of (1) reported voyage revenues of $132.6 million minus (2) voyage revenues of $28.9 million attributable to Star Logistics.
  • Voyage revenues used to calculate TCE rate for the first half of 2018 consist of (1) reported voyage revenues of $253.7 million minus (2) voyage revenues of $52.0 million attributable to Star Logistics.
  • Voyage expenses used to calculate TCE rate for the second quarter of 2018 consist of (1) reported voyage expenses of $19.9 million minus (2) voyage expenses of $6.2 million attributable to Star Logistics.
  • Voyage expenses used to calculate TCE rate for the first half of 2018 consist of (1) reported voyage expenses of $42.6 million minus (2) voyage expenses of $12.6 million attributable to Star Logistics.
  • Charter-in hire expenses used to calculate TCE rate for the second quarter of 2018 consist of (1) reported charter-in hire expenses of $24.3 million minus (2) charter-in hire expenses of $24.3 million attributable to Star Logistics.
  • Charter-in hire expenses used to calculate TCE rate for the first half of 2018 consist of (1) reported charter-in hire expenses of $40.8 million minus (2) charter-in hire expenses of $40.8 million attributable to Star Logistics.

 

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