Eagle Bulk Shipping Inc., one of the world’s largest owner-operators within the midsize drybulk vessel segment, reported financial results for the quarter ended June 30, 2023.
Quarter Highlights:
Generated Revenues, net of $101.4 million
Achieved TCE(1) of $14,434/day based on TCE Revenue(1) of $65.0 million
Realized net income of $18.0 million, or $1.42 per basic share
Adjusted net income(1) of $16.7 million, or $1.31 per basic share(1)
Generated Adjusted EBITDA(1) of $24.8 million
Closed on the purchase and took delivery of two high-specification 2020-built scrubber-fitted Ultramax bulkcarriers
Vessels were renamed the Halifax Eagle and Vancouver Eagle
Completed the sale of two non-core, non-scrubber-fitted Supramax bulkcarriers (Montauk Eagle and Newport Eagle)
Executed upsize and extension of credit facility
Increased borrowing capacity by $175 million, reduced margin and extended maturity to September 2028
Repurchased 3.8 million shares of common stock, representing 28% of outstanding shares (prior to purchase)
Declared a quarterly dividend of $0.58 per share for the second quarter of 2023
Dividend is payable on August 24, 2023 to shareholders of record at the close of business on August 16, 2023
Recent Developments:
Completed the sale of the Sankaty Eagle, a non-core, non-scrubber-fitted Supramax bulkcarrier (July 2023)
Coverage position for the third quarter of 2023 is as follows:
67% of owned available days fixed at an average TCE of $10,900
Eagle's CEO Gary Vogel commented, “We meaningfully outperformed the benchmark BSI (Baltic Supramax Index) as we achieved a net TCE of $14,434 in the second quarter, in what proved to be a challenging market for the industry due to lackluster demand from China and ongoing easing of congestion.
While earnings for the quarter were muted, in line with the market, dividends per share were impacted positively by over 40% as a result of our significant share repurchase effected during the quarter. We also finalized the acquisition of two 2020-built scrubber fitted Ultramax vessels as well as the sale of three non-scrubber fitted Supramaxes.
Looking ahead, the forward curve for the balance of the year remains in contango reflecting the market’s continued expectation for a recovery in rates as supply/demand dynamics continue to strengthen. With congestion now back to pre-COVID levels, and essentially fully unwound, we see rates pushing back-up above the forward curve. We remain positive about the medium-term prospects for the drybulk industry, particularly given the historically strong supply side fundamentals.
With a fully modern fleet of 52, predominately scrubber-fitted vessels, and $195 million of liquidity, Eagle is in a unique leadership position to continue to take advantage of opportunities for the benefit of our shareholders.”
Fleet Development
Halifax Eagle, a 2020-built, scrubber-fitted Ultramax (64k DWT)
Acquired in first quarter of 2023 for $30.1 million and delivered to the Company in second quarter of 2023
Vancouver Eagle, a 2020-built, scrubber-fitted Ultramax (64k DWT)
Acquired in first quarter of 2023 for $30.1 million and delivered to the Company in second quarter of 2023
Montauk Eagle, a 2011-built Supramax (58k DWT)
Sold in second quarter of 2023 for $16.7 million and delivered to new owners in second quarter of 2023
Newport Eagle, a 2011-built Supramax (58k DWT)
Sold in second quarter of 2023 for $16.7 million and delivered to new owners in second quarter of 2023
Sankaty Eagle, a 2011-built Supramax (58k DWT)
Sold in second quarter of 2023 for $16.4 million and delivered to new owners in third quarter of 2023
Pro forma owned fleet totals 52 vessels with an average age of 10.0 years
Results of Operations for the three and six months ended June 30, 2023 and 2022
For the three months ended June 30, 2023, the Company reported net income of $18.0 million, or basic and diluted net income per share of $1.42 and $1.21, respectively. In the comparable quarter of 2022, the Company reported net income of $94.5 million, or basic and diluted net income per share of $7.27 and $5.77, respectively.
For the three months ended June 30, 2023, the Company reported adjusted net income of $16.7 million, which excludes net unrealized gains on FFAs and bunker swaps of $2.0 million and impairment of operating lease right-of-use assets of $0.7 million, or basic and diluted adjusted net income per share of $1.31 and $1.13, respectively. In the comparable quarter of 2022, the Company reported adjusted net income of $81.6 million, which excludes net unrealized gains on FFAs and bunker swaps of $12.8 million, or basic and diluted adjusted net income per share of $6.28 and $4.98, respectively.
For the six months ended June 30, 2023, the Company reported net income of $21.2 million, or basic and diluted net income per share of $1.65 and $1.48, respectively. For the six months ended June 30, 2022, the Company reported net income of $147.5 million, or basic and diluted net income per share of $11.36 and $9.01, respectively.
For the six months ended June 30, 2023, the Company reported adjusted net income of $20.2 million, which excludes net unrealized gains on FFAs and bunker swaps of $1.8 million and impairment of operating lease right-of-use assets of $0.7 million, or basic and diluted adjusted net income per share of $1.56 and $1.42, respectively. For the six months ended June 30, 2022, the Company reported adjusted net income of $146.1 million, which excludes net unrealized gains on FFAs and bunker swaps of $1.4 million, or basic and diluted adjusted net income per share of $11.26 and $8.93, respectively.
Revenues, net
Revenues, net for the three months ended June 30, 2023 were $101.4 million compared to $198.7 million for the comparable quarter of 2022. Revenues, net decreased $97.3 million primarily due to lower rates on both time and voyage charters, driven by a decline in the drybulk market.
Revenues, net for the six months ended June 30, 2023 were $206.6 million compared to $383.1 million for the six months ended June 30, 2022. Revenues, net decreased $176.5 million primarily due to lower rates on both time and voyage charters, driven by a decline in the drybulk market.
Voyage expenses
Voyage expenses for the three months ended June 30, 2023 were $25.5 million compared to $36.3 million for the comparable quarter of 2022. Voyage expenses decreased $10.8 million primarily due to a $7.4 million reduction in bunker consumption expenses due to a decrease in bunker prices, a $2.3 million reduction in port expenses due to a decrease in voyage charters and a $1.1 million decrease in broker commissions due to lower revenues.
Voyage expenses for the six months ended June 30, 2023 were $58.9 million compared to $79.9 million for the six months ended June 30, 2022. Voyage expenses decreased $21.0 million primarily due to a $10.5 million reduction in bunker consumption expenses due to a decrease in bunker prices, a $8.3 million reduction in port expenses due to a decrease in voyage charters and a $2.2 million decrease in broker commissions due to lower revenues.
Vessel operating expenses
Vessel operating expenses for the three months ended June 30, 2023 were $31.0 million compared to $27.2 million for the comparable quarter of 2022. Vessel operating expenses increased $3.8 million due to a $3.8 million increase in costs primarily driven by certain repairs and discretionary spending on upgrades to six vessels, including newly acquired ships and a $0.9 million increase in crewing costs driven by higher compensation and increased crew changes as a result of crewing manager transitions, partially offset by a $0.5 million decrease in lube costs driven by lower purchase volume.
Vessel operating expenses for the six months ended June 30, 2023 were $62.3 million compared to $55.1 million for the six months ended June 30, 2022. Vessel operating expenses increased $7.1 million as a result of higher ownership days and due to a $4.5 million increase in costs driven by certain repairs and discretionary spending on upgrades to six vessels, including newly acquired ships and a $3.3 million increase in crewing costs driven by higher compensation and increased crew changes as a result of crewing manager transitions, partially offset by a $0.5 million decrease in lube costs driven by lower purchase volume.
Adjusted vessel operating expenses(2), which excludes one-time, non-recurring expenses related to vessel acquisitions, charges relating to a change in the crewing manager on some of the Company’s vessels and discretionary hull and hold upgrades for the three months ended June 30, 2023 were $28.3 million compared to $26.9 million for the comparable quarter in 2022. Adjusted vessel operating expenses increased $1.3 million primarily due to a $2.7 million increase in costs driven by certain repairs on six vessels, partially offset by a $0.7 million decrease in stores and spares due to the timing of purchases and a $0.7 million decrease in lube costs driven by lower purchase volume. Average daily adjusted vessel operating expenses(2) (“Adjusted DVOE”) for the three months ended June 30, 2023 were $5,882 compared to $5,584 for the comparable quarter in 2022.
Adjusted vessel operating expenses(2), which excludes one-time, non-recurring expenses related to vessel acquisitions, charges relating to a change in the crewing manager on some of the Company’s vessels and discretionary hull and hold upgrades for the six months ended June 30, 2023 were $59.1 million compared to $54.7 million for the six months ended June 30, 2022. Adjusted vessel operating expenses increased $4.4 million primarily due to a $3.4 million increase in costs driven by certain repairs to six vessels and a $2.6 million increase in crewing costs driven by higher compensation, partially offset by a $0.8 million decrease in lube costs driven by lower purchase volume. Adjusted DVOE for the six months ended June 30, 2023 were $6,141 compared to $5,702 for the six months ended June 30, 2022.
2 This is a non-GAAP financial measure. A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial tables included in this press release. An explanation of this measure and how it is calculated is also included below under the heading “Supplemental Information - Non-GAAP Financial Measures.”
Charter hire expenses
Charter hire expenses for the three months ended June 30, 2023 were $11.7 million compared to $21.3 million for the comparable quarter of 2022. Charter hire expenses decreased $9.6 million primarily due to decreases in both charter hire rates and chartered-in days related to a decline in the drybulk market.
Charter hire expenses for the six months ended June 30, 2023 were $24.1 million compared to $44.0 million for the six months ended June 30, 2022. Charter hire expenses decreased $19.9 million primarily due to decreases in both charter hire rates and chartered-in days related to a decline in the drybulk market.
Chartered-in days, which is the aggregate number of days in a period during which the Company chartered-in vessels, for the three months ended June 30, 2023 and 2022 were 782 and 1,142 days, respectively. Chartered-in days for the six months ended June 30, 2023 and 2022 were 1,726 and 2,102, respectively.
Depreciation and amortization
Depreciation and amortization for the three months ended June 30, 2023 was $14.8 million compared to $15.3 million for the comparable quarter of 2022. Depreciation and amortization decreased $0.4 million primarily due to a $1.0 million decrease in depreciation due to a change in our estimated vessel scrap value from $300 per lwt to $400 per lwt, effective January 1, 2023, partially offset by a $0.4 million increase in depreciation from the net impact of vessels acquired and sold during the respective periods.
Depreciation and amortization for the six months ended June 30, 2023 was $29.6 million compared to $29.8 million for the six months ended June 30, 2022. Depreciation and amortization decreased $0.3 million primarily due to a $2.0 million decrease in depreciation due to a change in our estimated vessel scrap value from $300 per lwt to $400 per lwt, effective January 1, 2023, partially offset by a $0.7 million increase in depreciation from the net impact of vessels acquired and sold during the respective periods and a $0.7 million increase in deferred drydocking cost amortization due to higher drydocking expenditures and a $0.2 million increase in depreciation driven by an increase in installed vessel improvements.
General and administrative expenses
General and administrative expenses for the three months ended June 30, 2023 were $11.3 million compared to $9.9 million for the comparable quarter of 2022. Excluding stock-based compensation expense of $2.2 million and $1.6 million for the three months ended June 30, 2023 and 2022, respectively, general and administrative expenses for the three months ended June 30, 2023 were $9.1 million compared to $8.3 million for the comparable quarter of 2022. General and administrative expenses increased $1.4 million primarily due to a $0.9 million increase in employee-related costs and a $0.6 million increase in stock-based compensation expense.
General and administrative expenses for the six months ended June 30, 2023 were $22.2 million compared to $19.9 million for the six months ended June 30, 2022. Excluding stock-based compensation expense of $4.0 million and $3.1 million for the six months ended June 30, 2023 and 2022, respectively, general and administrative expenses for the six months ended June 30, 2023 were $18.2 million compared to $16.9 million for the six months ended June 30, 2022. General and administrative expenses increased $2.3 million primarily due to a $0.9 million increase in stock-based compensation expense, a $0.9 million increase in employee-related costs and other small increases across professional fees, corporate travel and office expenses.
Other operating expense
Other operating expense for the three months ended June 30, 2023 and 2022 was $0.1 million and less than $0.1 million, respectively.
Other operating expense for each of the six months ended June 30, 2023 and 2022 was $0.2 million.
Gain on sale of vessels
For the three months ended June 30, 2023, the Company recorded a gain on the sale of the vessels Montauk Eagle and Newport Eagle of $11.6 million.
For the six months ended June 30, 2023, the Company recorded a gain on the sale of the vessels Jaeger, Montauk Eagle and Newport Eagle of $14.9 million.
Interest expense
Interest expense for the three months ended June 30, 2023 and 2022 was $4.4 million and $4.3 million, respectively. Interest expense increased $0.1 million due to higher interest rates on amounts outstanding under the Global Ultraco Debt Facility, partially offset by the impact of interest rate hedging instruments.
Interest expense for the six months ended June 30, 2023 and 2022 was $8.3 million and $8.8 million, respectively. Interest expense decreased $0.5 million due to lower average outstanding principal balances driven by principal repayments and the impact of interest rate hedging instruments, partially offset by the impact of higher interest rates on amounts outstanding under the Global Ultraco Debt Facility.
Interest income
Interest income for the three months ended June 30, 2023 and 2022 was $1.8 million and $0.2 million, respectively. Interest income increased primarily due to higher interest rates on the Company’s cash balances.
Interest income for the six months ended June 30, 2023 and 2022 was $3.7 million and $0.2 million, respectively. Interest income increased primarily due to higher interest rates on the Company’s cash balances.
Realized and unrealized gain on derivative instruments, net
Realized and unrealized gain on derivative instruments, net for the three months ended June 30, 2023 was $2.8 million compared to $9.9 million for the comparable quarter of 2022. The realized and unrealized gain on derivative instruments, net decreased $7.1 million due to market movements as well as lower FFA and bunker swap activity.
Realized and unrealized gain on derivative instruments, net for the six months ended June 30, 2023 was $2.4 million compared to $2.0 million for the six months ended June 30, 2022. The realized and unrealized gain on derivative instruments, net increased $0.4 million due to market movements as well as lower FFA and bunker swap activity.
Net cash provided by operating activities for the six months ended June 30, 2023 was $32.2 million, compared to $140.2 million for the six months ended June 30, 2022. The decrease is primarily due to a decrease in net income driven by lower freight rates, partially offset by changes in operating assets and liabilities primarily driven by decreases in accounts receivable and inventories for the six months ended June 30, 2023 compared to increases for the comparable period in 2022.
Net cash used in investing activities for the six months ended June 30, 2023 was $42.3 million, compared to $5.5 million for the six months ended June 30, 2022. During the six months ended June 30, 2023, the Company (i) paid $81.7 million to purchase three vessels and other vessel improvements and (ii) paid $1.4 million to purchase BWTS. These uses of cash were partially offset by $40.7 million in net proceeds from the sale of three vessels. During the six months ended June 30, 2022, the Company (i) paid $4.8 million to purchase BWTS, (ii) paid $0.5 million to purchase vessel improvements and (iii) paid $0.2 million to purchase other fixed assets.
Net cash used in financing activities for the six months ended June 30, 2023 was $61.3 million, compared to $79.4 million for the six months ended June 30, 2022. During the six months ended June 30, 2023, the Company (i) paid $221.2 million to repurchase Common Stock, inclusive of fees, (ii) repaid $24.9 million of term loan under the Global Ultraco Debt Facility, (iii) paid $10.0 million in dividends and (iv) paid $1.7 million for taxes related to net share settlement of equity awards. These uses of cash were partially offset by (i) $123.4 million of proceeds, net of debt issuance costs, from the Revolving Facility under the Global Ultraco Debt Facility and (ii) $73.1 million of proceeds, net of debt issuance costs, from the Term Facility under the Global Ultraco Debt Facility. During the six months ended June 30, 2022, the Company (i) paid $52.8 million in dividends, (ii) repaid $24.9 million of term loan under the Global Ultraco Debt Facility and (iii) paid $1.9 million for taxes related to net share settlement of equity awards. As it relates to amounts paid for taxes related to net share settlement of equity awards, the Company withholds a number of shares earned by employees with a value equal to amounts paid.
As of June 30, 2023, cash and cash equivalents including noncurrent restricted cash was $118.3 million compared to $189.8 million as of December 31, 2022.
The Company continuously evaluates potential transactions that it expects to be accretive to earnings, enhance shareholder value or are in the best interests of the Company, including without limitation, business combinations, the acquisition of vessels or related businesses, repayment or refinancing of existing debt, the issuance of new securities, share and debt repurchases or other transactions.
Capital Expenditures and Drydocking
Our capital expenditures primarily relate to the purchase of vessels as well as regularly scheduled drydocking and other vessel improvements, which are expected to enhance their revenue earning capabilities, efficiency and/or safety and to comply with international shipping standards and environmental laws and regulations. Certain vessel improvement costs and costs incurred in connection with drydocking are necessary to comply with international shipping standards and environmental laws and regulations, while others are discretionary in nature and evaluated on a business case-by-case basis.
During the fourth quarter of 2022, the Company entered into a memorandum of agreement to acquire a high-specification 2015-built Ultramax bulkcarrier for total consideration of $24.3 million. The vessel was delivered to the Company during the first quarter of 2023.
On January 30, 2023, the Company entered into a memorandum of agreement to acquire a high-specification 2020-built scrubber-fitted Ultramax bulkcarrier for total consideration of $30.1 million. The vessel was delivered to the Company during the second quarter of 2023.
On February 28, 2023, the Company entered into a memorandum of agreement to acquire a high-specification 2020-built scrubber-fitted Ultramax bulkcarrier for total consideration of $30.1 million. The vessel was delivered to the Company during the second quarter of 2023.
Although the Company has some flexibility regarding the timing of vessel drydockings, the timing of costs are relatively predictable. In accordance with statutory requirements, we expect vessels less than 15 years old to be drydocked every 60 months and vessels older than 15 years to be drydocked every 30 months. We intend to fund drydocking costs with cash from operations, cash on hand or with amounts available under the Global Ultraco Debt Facility. In addition, drydocking typically requires us to reposition vessels from a discharge port to shipyard facilities, which will reduce our owned available days and revenues during that period.
Drydocking costs incurred are deferred and amortized through depreciation and amortization on the condensed consolidated statements of operations on a straight-line basis over the period through the date the next drydocking is required to become due. During the six months ended June 30, 2023, five of our vessels completed drydock and we incurred $8.3 million for drydocking costs. During the six months ended June 30, 2022, seven of our vessels completed drydock and we incurred $16.1 million for drydocking costs.
Vessel improvements generally include systems and equipment intended to enhance a vessel’s efficiency and revenue earning capability. We intend to fund these costs through cash from operations, cash on hand or amounts available under the Global Ultraco Debt Facility.
