Scorpio Bulkers books USD 25 million net loss in second quarter

Scorpio-Bulkers

Scorpio Bulkers Inc. reported its results for the three and six months ended June 30, 2016.

Results for the three and six months ended June 30, 2016 and 2015

For the three months ended June 30, 2016, the Company’s GAAP net loss was $24.7 million, or $0.48 loss per diluted share compared to a GAAP net loss of $138.6 million, or $8.50 loss per diluted share for the three months ended June 30, 2015. For the three months ended June 30, 2015, the Company’s adjusted net loss was $16.6 million or $1.01 adjusted loss per diluted share, which excludes a write down of assets held for sale of $119.6 million and the write off of deferred financing costs on credit facilities that will no longer be used of $2.4 million, or $7.49 loss per diluted share (see Non-GAAP Financial Measures section below). There were no non-GAAP adjustments to earnings in the three months ended June 30, 2016.

For the six months ended June 30, 2016, the Company’s adjusted net loss was $58.1 million, or $1.43 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, or $0.62 loss per diluted share (see Non-GAAP Financial Measures section below). For the six months ended June 30, 2016, the Company had a GAAP net loss of $83.0 million, or $2.05 loss per diluted share.

For the six months ended June 30, 2015, the Company’s adjusted net loss was $33.4 million or $2.17 adjusted loss per diluted share, which excludes a write down on assets held for sale of $151.4 million and the write off of deferred financing costs on credit facilities that will no longer be used of $6.0 million, or $10.23 loss per share (see Non-GAAP Financial Measures section below). For the six months ended June 30, 2015, the Company had a GAAP net loss of $190.7 million, or $12.40 loss per diluted share.

Recent Significant Events

TCE Revenue Earned during the Second Quarter of 2016

Our Kamsarmax fleet earned $5,263 per day
Our Ultramax fleet earned $5,335 per day

Voyages Fixed thus far in the Third Quarter of 2016

Kamsarmax fleet: approximately $6,611 per day for 45% of the days
Ultramax fleet: approximately $7,153 per day for 55% of the days

Equity Raise

During the second quarter of 2016, the Company raised net proceeds of approximately $67.5 million through the issuance of 23 million shares of common stock at $3.05 per share. Scorpio Services Holding Limited purchased an aggregate of 5,250,000 common shares at the public offering price.

Newbuilding Vessels Deliveries

During the second quarter of 2016, the Company took delivery from shipyards of the following newbuilding vessels:

SBI Zeus, an Ultramax vessel, was delivered from Mitsui Engineering & Shipbuilding Co., Ltd.
SBI Hyperion, an Ultramax vessel, was delivered from Nantong COSCO KHI Ship Engineering Co, Ltd.
SBI Hera, an Ultramax vessel, was delivered from Mitsui Engineering & Shipbuilding Co., Ltd.

Between July 1, 2016 and July 22, 2016 the Company took delivery from shipyards of the following newbuilding vessels:

SBI Tethys, an Ultramax vessel, was delivered from Nantong COSCO KHI Ship Engineering Co, Ltd.
SBI Phoebe, an Ultramax vessel, was delivered from Chengxi Shipyard Co. Ltd.

Liquidity and Debt

Fleet Financing Update

During the second quarter of 2016, the Company agreed with its lenders to amend the relevant loan agreements such that the interest coverage ratio, as defined in each agreement, will not be applicable until the first quarter of 2018, at which point the ratio will be 1.00 to 1.00 and will be calculated on a year-to-date basis for the first and second quarter of 2018. Thereafter, the interest coverage ratio will revert to its original covenant level of 2.50 to 1.00.

During the second quarter of 2016, the Company agreed with its lenders to amend its loan agreements such that the respective value-to-loan ratio covenant, as defined in each agreement, is reduced to 140% in all but the $67.5 Million Credit Facility, where the covenant level is reduced to 115%.

During the second quarter of 2016, the Company also agreed with all of its lenders to amend definitions within its “leverage ratio” and “consolidated net worth” covenants to exclude certain non-operating items.

Loan Prepayments

$67.5 Million Credit Facility

In January 2016, the Company reached an agreement in principle with the lender to add four quarterly installment payments to the balloon payment in exchange for an advance principal repayment of approximately $4.0 million. As a result of this agreement, the Company will not have to make the next eight quarterly installment payments totaling $8.0 million. The agreement was executed in April 2016 at which time we made a prepayment of $3.2 million. The remaining prepayment of $0.8 million under this agreement was made upon drawing down the loan on the SBI Phoebe in July 2016.

In May 2016, the Company reached an agreement with the lender to make an advance principal repayment of approximately $2.5 million, which was made in the second quarter of 2016. In connection with this amendment the Company agreed to reduce the available loan amount by approximately $4.4 million.

$409.0 Million Credit Facility

In February 2016, the Company reached an agreement in principle with the lender to add four quarterly installment payments to the balloon payment in exchange for an advance principal repayment of approximately $14.0 million (calculated on the basis of loan amounts available for undelivered ships and adjusted for the recent cancellation of a shipbuilding contract as announced on April 3, 2016), which was made in the first half of 2016 or, where applicable, will be made upon draw down. As a result of this agreement, the Company will not have to make the next eight quarterly installment payments totaling $28.1 million (calculated on the basis of loan amounts available for the undelivered ships and adjusted for the cancellation of a shipbuilding contract). The agreement was executed in April 2016.

During the second quarter of 2016, the Company agreed to reduce the available loan amount by approximately $22.5 million.

$330 Million Credit Facility

In May 2016, the Company reached an agreement with the lenders to not make $10.0 million of installment payments falling due between the second quarters of 2016 and 2017 in exchange for an advance principal repayment of $10.0 million, which was made in the second quarter of 2016.

During the second quarter of 2016, the Company agreed to reduce the available loan amount by approximately $16.8 million.

$42 Million Credit Facility

In May 2016, the Company reached an agreement with the lender to not make approximately $0.8 million of installment payments falling due in the first quarter of 2018 in exchange for an advance principal repayment of approximately $0.8 million, which was made in the second quarter of 2016.

$27.3 Million Credit Facility

In February 2016, the Company reached an agreement in principle with the lender to add four quarterly installment payments to the balloon payment in exchange for an advance principal repayment of approximately $1.6 million. As a result of this agreement, the Company will not have to make the next eight quarterly installment payments totaling $3.1 million. The agreement was executed in April 2016 at which time the prepayment was made.

In May 2016, the Company reached an agreement with the lender to not make approximately $0.8 million of installment payments falling due between the second and third quarters of 2018 in exchange for an advance principal repayment of approximately $0.8 million, which was made in the second quarter of 2016.

$39.6 Million Credit Facility

In May 2016, the Company reached an agreement with the lender to not make approximately $0.5 million of installment payments falling due in the first quarter of 2018 in exchange for an advance principal repayment of approximately $0.5 million, which was made in the second quarter of 2016.

Financial Results for the Three Months Ended June 30, 2016 Compared to the Three Months Ended June 30, 2015

The Company had a GAAP net loss of $24.7 million, or $0.48 loss per diluted share for the second quarter of 2016 compared with a GAAP net loss of $138.6 million, or $8.50 loss per diluted share for the second quarter of 2015. Excluding a write down of assets held for sale of $119.6 million and the write off of deferred financing costs on credit facilities that will no longer be used of $2.4 million, adjusted net loss for the second quarter of 2015 was $16.6 million or $1.01 adjusted loss per diluted share (see Non-GAAP Financial Measures below). There were no non-GAAP adjustments to earnings in the second quarter of 2016.

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 $17.4 million for the second quarter of 2016 and is associated with a day weighted average of 3 vessels time chartered-in and 34 vessels owned compared to $12.6 million during the prior year quarter, which was associated with chartering in a day weighted average of 13 vessels and eight vessels owned. (For a complete list of our vessels owned please see the Company’s Fleet List.) TCE revenue per day was $5,303 and $6,663 for the second quarter of 2016 and 2015, respectively, as reflected in the table below. While rates have rebounded slightly from the recent historic lows, rates remained considerably lower in the second quarter of 2016 than during the prior year period, resulting in a lower TCE revenue per day. The overall increase in TCE revenue versus the prior year period is due to the increase in revenue days associated with the growth of our fleet.

Vessel operating costs were $15.6 million included approximately $0.9 million of takeover costs associated with new deliveries and related to 34 vessels owned, on average, during the period. Takeover costs will decrease as our newbuildings are delivered. Vessel operating costs for the prior year quarter were $4.5 million and related to eight vessels owned, on average, during the period. Daily operating costs, excluding takeover costs, for the second quarter of 2016 were approximately $4,750. Sequentially, these costs decreased from the first quarter of 2016 when daily operating costs excluding takeover costs were $4,969.

Charterhire expense decreased to $3.6 million in the second quarter of 2016 from $13.2 million in the prior year period, reflecting the reduction in the number of vessels time chartered-in. Charterhire expense is expected to decrease to approximately $2.7 million per quarter for the remainder of the year as the number of chartered-in vessels has been reduced to two.

Depreciation increased to $8.7 million in the second quarter of 2016 from $2.6 million in the prior year period, reflecting the increase in our weighted average vessels owned to 34 from eight.

General and administrative expense was $8.6 million in both periods and includes $4.7 million and $6.2 million of restricted stock amortization in the second quarters of 2016 and 2015, respectively. The decrease in restricted stock amortization is due to prior year grants vesting and being fully expensed. This decrease was offset by an increase in commercial management fees, reflecting the growth of our fleet, as well as an increase in legal and professional services fees.

During the second quarter of 2016, Company agreed with certain lenders to reduce the aggregate available loan amounts by $43.7 million resulting in the write off of approximately $1.3 million of deferred financing costs.

During the second quarter of 2015, the Company recorded a loss/write off of vessels and assets held for sale associated with writing down nine contracts to construct vessels that the Company classified as held for sale during the period as well as incremental write downs of certain construction contracts that were classified as held for sale at March 31, 2015. It also wrote off $2.4 million, of deferred financing costs accumulated on credit facilities for which the commitments were reduced pursuant to the removal from the facilities of certain vessels that have been sold or classified as held for sale.

Financial Results for the Six Months Ended June 30, 2016 Compared to the Six Months Ended June 30, 2015

The Company had a GAAP net loss of $83.0 million, or $2.05 loss per diluted share for the six months ended June 30, 2016 compared with a GAAP net loss of $190.7 million, or $12.40 loss per diluted share for the six months ended June 30, 2015. Excluding a loss/write off of vessels and assets held for sale of $12.4 million, a 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 net loss for the six months ended June 30, 2016 was $58.1 million, or $1.43 adjusted loss per diluted share. Excluding a loss/write off of vessels and assets held for sale of $151.4 million and the write off of deferred financing costs on credit facilities that will no longer be used of $6.0 million, adjusted net loss for the six months ended June 30, 2015, was $33.4 million or $2.17 adjusted loss per diluted share (see Non-GAAP Financial Measures below).

TCE revenue was $27.6 million in the first half of 2016 and is associated with a day weighted average of five vessels time chartered-in and 33 average vessels owned compared to $25.0 million during the prior year period, which was associated with chartering in a day weighted average of 14 vessels and seven average vessels owned. (For a complete list of our vessels owned please see the Company’s Fleet List.) TCE revenue per day was $4,396 and $6,681 for the first half of 2016 and 2015, respectively as reflected in the table below. The decrease in TCE revenue per day is due to the sale of all of our Capesize vessels as well as a reduced rates resulting from the weakness in the dry bulk market, as reflected by the Baltic Dry Index (“BDI”). After falling to an all-time low of 290 in February of 2016, the BDI has rebounded slightly but remains at depressed levels. The increase in the average vessels owned outweighed the reduced rates resulting in an increase in total TCE revenue versus the prior year period.

Vessel operating costs were $30.9 million, including approximately $1.9 million of takeover costs associated with new deliveries and related to 34 vessels owned on average during the period. Takeover costs will decrease as our newbuildings are delivered. Vessel operating costs for the prior year period were $7.5 million and related to seven vessels owned, on average, during the period. Daily operating costs, excluding takeover costs, for the first half of 2016 were $4,856.

Charterhire expense decreased to $12.2 million in the first half of 2016 from $29.4 million in the prior year period reflecting the reduction in the number of vessels time chartered-in. During the first half of 2016 we also recorded a $10.0 million charge to terminate four time charter-in contracts. Termination of these contracts reduces our future cash outflow and will have a positive impact on our future operating results as the contracts were at above current market rates. Charterhire expense is expected to drop to approximately $2.7 million per quarter for the remainder of the year as we have reduced the number of vessels chartered-in to two.

Depreciation increased to $16.0 million in the first half of 2016 from $4.1 million in the prior year period reflecting the increase in our weighted average vessels owned to 33 from seven.

General and administrative expense was $16.4 million and $16.9 million for the first half of 2016 and 2015, respectively, and included $9.2 million and $12.2 million of restricted stock amortization, respectively. The decrease in restricted stock amortization is due to prior year grants vesting and being fully expensed as well as the reversal of expense related to cancelled awards. This decrease was partially offset by an increase in commercial management fees, reflecting the growth of our fleet, compensation costs including employee separation costs, and an increase in directors’ fees due to two additional independent directors, as well as an increase in the number of board of director and committee meetings.

During the first half of 2016, the Company recorded a loss/write off 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 that was expected to be delivered in April 2016 and $0.8 million in additional expenses related to vessels held for sale at December 31, 2015. The loss recorded in the prior year period was associated with writing down 13 contracts to construct vessels that were classified as held for sale during the six months ended June 30, 2015, as well as an incremental write down of certain contracts classified as held for sale at December 31, 2014.

During the first half of 2016 and 2015, the Company wrote off $2.5 million and $6.0 million, respectively, of deferred financing costs accumulated on credit facilities for which the commitments were reduced pursuant to the removal from the facilities of certain vessels that have been sold or classified as held for sale. In addition, during 2016, Company agreed with certain lenders to reduce the aggregate available loan amounts by $43.7 million resulting in the write off of approximately $1.3 million of deferred financing costs.

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