Eagle Bulk Shipping Inc.
Q1 2017 Earnings Call Transcript

Published: 14 May 2017

[Operator:]

Good day, ladies and gentlemen, and welcome to the Eagle Bulk Shipping reports first quarter 2017 results conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Gary Vogel, CEO. Sir, you may begin.

[Gary Vogel:]

Thank you and good morning. I’d like to welcome everyone to Eagle Bulk’s first quarter 2017 earnings call. To supplement our remarks today, I encourage participants to access the slide presentation that’s available on our website at www.eagleships.com. Please note that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and are inherently subject to risk and uncertainties. You should not place undue reliance on these forward-looking statements. Please refer to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties that may have a direct bearing on our operating results, our performance and our financial condition. Please now turn to slide three for the agenda for today’s call. We will first provide you with a brief recap of our first quarter results and recent business highlights and then proceed with a more detailed review of our financials, followed by an update on company performance. And finally, we will end the call with a discussion on industry fundamentals before opening up the call for Q&A. Please turn to slide five. Notwithstanding the seasonal impacts occurring in January and February, the dry bulk market remained firm during the first quarter of 2017. Overall, the Baltic Supramax Index, or BSI, was essentially flat quarter-on-quarter, decreasing 2% to average approximately 8,200 per day gross for the period, representing a more than twofold increase year-on-year. After setting a two-year high in December at 10,200 on the back of increased trade volumes of iron ore and coal, the BSI averaged just approximately 7,600 for the first two months of the year. Weakness in rates for those months can be attributed to the traditional seasonal factors relating to increased deliveries, spilling over from December, and general lull in trading activity due to the Chinese New Year. As the market normalized towards the end of February and the South American grain season was starting to kick off, rates climbed back up into the mid 9s. As shown in the chart on slide five, the spread differential between the Atlantic and Pacific markets narrowed quite a bit towards the end of the quarter. One primary reason for this is due to the number of ships that had ballasted to the Atlantic in an anticipation of loading grain for the East Coast South America season, basically leading to a shortage on a relative basis in the Pacific. For the full quarter, the Atlantic market outperformed the Pacific by 72%, relatively unchanged from the prior period. On the supply side, newbuilding deliveries totaled almost 18 million deadweight tons during the first quarter, or approximately 200 vessels, a significant, but expected, increase from prior quarter as many ships were intentionally delayed from 2016 into the new calendar year. Demolition of older tonnage amounted to 4.4 million deadweight tons during the quarter, or roughly 57 vessels, representing an increase of 18% over the prior period. Although spot rates recovered strongly since February 2016, it’s worth noting that the market remains at fairly low levels when viewed from a historic perspective. Please turn to slide six. For the first quarter of 2017, Eagle Bulk generated revenues net of commissions of $45.9 million and realized a net TCE of $7,772, representing almost a threefold increase compared to the first quarter of 2016. Eagle incurred a net loss for the quarter of $11.1 million or $0.17 per share, representing a material improvement both quarter-on-quarter and year-on-year. Adjusted EBITDA, a non-GAAP financial measure, for the quarter was a positive $4.6 million. On the business side, I’m pleased to report that we recently executed a vessel swap, cancelling a legacy long-term time charter in contract, dating to 2011 on a 38,000 deadweight Japanese Handysize vessel, while replacing it with a 2013-built Japanese Ultramax. The new charter has the same fixed duration as the cancelled charter, but with options for two additional years. Eagle will pay a lumpsum $1.5 million related to the cancellation of this legacy charter, but the new rate on the vessel is lower by $950 per day. And we will benefit from operating an Ultramax vessel, providing approximately 60% more cargo carrying capacity, as well as a vessel which complements both our strategy and overall fleet profile much better. In terms of sale and purchase, we remain quite active. Subsequent to the close of the quarter, we took delivery of the first two 63,000 deadweight vessels acquired from Greenship Bulk. The first vessel, renamed the Mystic Eagle, was delivered in late April and the second vessel, the Southport Eagle, delivered to us just yesterday. Also, as mentioned during our last earnings call, we sold and delivered the Redwing to our new owners in January and the Sparrow to our new owners in April. Please turn to slide seven for a brief update on our fleet profile and makeup. Turning to slide seven, we remain on track to take delivery of the remaining 7 Ultramax vessels between May and September. Fully delivered, we will own 11 Ultras, including two purchased during the fourth quarter, all of which are under five years of age. We are now in advanced discussions with banks to apply a moderate amount of leverage on the nine-vessel fleet acquired from Greenship Bulk. On the sales side, there has been no change since our last earnings call. Over the last 13 months, we’ve sold and delivered a total of six of our oldest, smallest vessels for total gross proceeds of almost $25 million. These vessels averaged just 51,000 deadweight tons in size and averaged over 14 years of age. In summary, Eagle’s pro forma own fleet totals 49 vessels, equating to almost 18,000 annual vessel days, with an average age of approximately 7.7 years. This makes us the third largest owner of Supramax Ultramaxes in the world after only COSCO of China and NYK of Japan. Subject to how the market develops, we intend to continue executing our fleet growth and renewal strategy, selling off some older and less efficient ships or purchasing newer and more efficient ones. In this regard, I believe we are well positioned to continue to take advantage of opportunities as they arise. With that, I would now like to turn the call over to Frank, who will review our financial performance.

[Frank De Costanzo:]

Thank you, Gary. And please turn to slide nine for a summary of our first quarter 2017 financial results. Revenue, net of commissions, for the first quarter was $45.9 million, an increase of $4 million from $41.9 million in the prior quarter and an increase of $24.6 million from $21.3 million in the same period in 2016. Total operating expenses, excluding vessel impairment, for the first quarter of 2017 were $50.4 million, a decrease of $4.4 million from the prior quarter and a decrease of $1.2 million from the comparable period in 2016. Gary will cover OpEx in greater detail later in the presentation. In regards to G&A, cash G&A was $5.6 million in the first quarter of 2017, down $6.2 million in the prior quarter and up from $4.5 million in the same period in 2016. The company reported a net loss of $11.1 million in the first quarter as compared to a net loss of $19.5 million excluding vessel impairment in the prior quarter and a net loss of $27.5 million excluding vessel impairment and refinancing charges in the same period in 2016. Net loss per share in the first quarter of 2017 was $0.17. Adjusted EBITDA came in at positive $4.6 million in the first quarter of 2017, an increase of $6.5 million from negative $1.9 million in the prior quarter and an increase of $19.1 million from negative $14.5 million in the same period in 2016. You will note, this is the first time we have presented adjusted EBITDA, which we believe is a useful metric to measure operating performance. A walk from net loss to adjusted EBITDA, along with additional information on non-GAAP measures, can be found on slide ten. The TCE came in at $7,772 in the first quarter of 2017, an increase of 24% from Q4 2016 and an increase of 106% from Q1 of 2016. Now let’s turn to slide ten. In this slide, you will find a walk from net loss of $11.1 million to adjusted EBITDA of positive $4.6 million. You will note that the business has become profitable in the quarter as measured by both EBITDA and adjusted EBITDA. Both EBITDA and adjusted EBITDA are non-GAAP measures. You can find additional information on non-GAAP measures on slide 28 of our presentation. Please turn to slide 11 for a review of the changes in cash flow. In Q1, net cash used in operating activities was $2 million. As the chart at the top of the slide shows, the positive trend in cash flows from operations continues. Cash flows used in operations sequentially improved from $19.5 million in Q1 of 2016 to $2 million in Q1 of 2017. If changes in operating assets and liabilities are excluded, primarily working capital, cash flows from operations was positive circa $2 million in the quarter. Let’s now turn to slide 12 for an overview of our balance sheet and liquidity. The company had total cash and cash equivalents of $145.8 million as of March 31, 2017 as compared to $76.5 million at December 31, 2016. The cash balance was boosted by net proceeds of $96 million from the second private placement, which closed in January. Accounts receivable increased by $3.7 million to $8.7 million at March 31, 2017. The increase in AR was subsequently received in early Q2. Inventories decreased by $2.1 million to $8.7 million at March 31, 2017. The decrease is mainly due to the sale of bunkers to charterers. Total debt, which is net of debt issuance and discount costs, of $19 million, stood at $256.8 million as of March 31, 2017. The outstanding debt under the first lien facility as of March 31, 2017 was $206.2 million, down $2.9 million from year-end 2016 and is made up of term loan balance of $181.2 million and the drawing revolver balance of $25 million. We did not draw on the revolver in the quarter. Since the company’s refinancing in Q1 of 2016, we have repaid $8.5 million of the term loan, with an additional $2.4 million paid down in early Q2 on the sale of the Sparrow. The outstanding balance for the second lien facility as of March 31, 2017 was $69.6 million. The company’s total liquidity as of March 31, 2017 was $170.8 million and is made up of total cash of $145.8 million, plus undrawn revolving credit facility availability of $25 million. Total liquidity at December 31, 2016 stood at $101.5 million. Let’s now review slide 13 for a cash breakeven per vessel per day. The total cash breakeven per vessel per day for Q1 2017 was $7,063. It is worth noting that, during the quarter, we had 41 vessels under ownership, down from 45 a year ago. After the delivery of all vessels to be acquired from Greenship Bulk, our fleet will consist of 49 vessels. The corresponding G&A cost per vessel per day on a fleet of 49 vessels is roughly in line with our 2016 full year figure. This concludes my review of the financials. I will now turn the call back to Gary, who will continue his discussion of the business and provide context around industry fundamentals.

[Gary Vogel:]

Thank you, Frank. Please turn to slide 15 for a review of our commercial performance. I’m pleased to report that our performance validates the potential of our active management model to generate TCEs and cash flows above index rates. Most importantly, we believe this performance can be sustained through continued implementation of our active owner operator model. The rationale for our model includes the basic fact that we believe the best way to create value for our shareholders is to keep critical chartering operations in-house and allow our shareholders to participate in full vessel economics. We believe this is a competitive advantage and differentiated approach that contrasts us with outsourcing vessel chartering to related or third-party management companies and is also distinct from managing ships passively, which seeds opportunities to garner additional value from the market. Our TCE for Q1 was $7,772 per day. This figure includes results from our own ships, chartered-in vessels and related FFA hedges. When comparing our TCE performance to the net BSI adjusted for the profile of our fleet in terms of deadweight and age, we calculate that Eagle has outperformed the market by approximately 8% for the quarter or more than $600 per day per ship as compared with simply fixing the ships added index. And as we started to take delivery of larger and more efficient vessels in the form of 11 Eagle Ultramaxes, the relative earning capacity of our fleet will continue to improve relative to index, where excess performance translates to increasing TCEs and related cash flows. So, for Eagle, based on a fleet of 49 vessels, $600 a day of outperformance equates to about $10 million of additional EBITDA on an annualized basis. This underscores the importance of earnings the company is able to generate as it relates to the capital deployed and the vessels at its disposal. It’s also worth noting that the incremental cash flow improvement in Q1 as compared to Q4 from rates equates to approximately $26 million on an annualized basis, given our new pro forma fleet size of 49 own ships. In terms of continuing performance as of yesterday, May 8, we had fixed 69% of the available days in Q2 at a TCE of $9,027 net or an increase of more than $1,250 per day as compared with Q1. Please turn to slide 16 for a discussion of OpEx. As mentioned in our previous earnings call, we continue to focus on creating cost efficiencies, while investing in our existing fleet in order to improve overall vessel condition and technical performance. Excluding the extraordinary items related to discretionary drydock for hull painting and upgrades, OpEx for the first quarter of 2017 was $4,800 per day, relatively flat to the full year of 2016. While Q1 OpEx came in above our full 2017 budget, given the lumpy nature of payments related to both stores and annual expenses, we think it’s appropriate to look at OpEx under a multi-quarter average and hold the view that our set 2017 OpEx will come in line with our budgeted $4,633 per day, equating to a 2% improvement year-on-year. Please turn to slide 17 for a discussion on maintenance CapEx. The chart on slide 17 depicts actual and forecasted drydocks by year. We have just one vessel due for drydock during 2017 and 15 vessels due for drydock during 2018. In terms of the IMO Ballast Water Management Convention, there’s really no updates since our last earnings call. We’re continuing to work to renew IOPP certificates as it relates to IMO requirement. And from a US Coast Guard perspective, we’re undertaking engineering studies as it relates to the evaluation of the currently approved systems in the market and in obtaining extensions if necessary and appropriate. Since it remains unclear as of today on whether we’ll be successful in obtaining extensions for budgeting for installations, which would coincide with a vessel scheduled drydock date occurring post September 2017. This completes our discussion on the company. And I’d now like to provide an overview of market fundamentals. Please turn to slide 19. On the supply side, an improved market environment has kept scrapping at a muted, but steady level of approximately 60 ships per quarter. Year-to-date 2017 through April, 80 ships, equating to approximately 6 million deadweight tons, have gone to demolition. Assuming this pace continues, scrapping for the full year will amount to roughly 18 million deadweight tons, equating to about 2% of the on-the-water fleet. Scrap rates are currently hovering around $370 per lightweight ton, which is close to a two-year high. Notwithstanding the improvement in the spot rate environment, we do believe demolition should at least maintain its current pace or even increase as owners try and take advantage of the attractive scrap prices. In addition, and as we’ve mentioned previously, the Ballast Water Management Convention will likely have a marked effect on the decision to take older vessels through a third or fourth special survey. On slide 20, we discuss forward supply. As mentioned earlier on the call, approximately 200 ships were delivered in Q1 2017. However, the pace is expected to fall off considerably, with approximately the same number of ships delivering over the remaining three quarters combined. New orders placed during 2016 amounted to just 48 ships, the lowest in over 20 years. It’s important to note that the vast majority of the orders placed in 2016 were in the Capesize sector, with roughly 8 Ultramax vessels ordered. New orders placed during 2017 through April amount to roughly 20 ships, but similarly just five Ultramaxes have been ordered this year. Given the improvement in spot rates and appreciation in second-hand assets, interest in new buildings has naturally increased in recent months. However, yards have been quick to raise their prices, which should help tamper any material ordering. The order book which currently stands at just 8% of the fleet has shrunk dramatically in recent years and is considered by most to be inflated due to legacy orders, which have been cancelled, but not reflected accordingly. Depending on actual scrapping and deliveries, which is affected by slippage, net supply is expected to be marginal this year, anywhere from zero to 2%. I would now like to switch to the demand side. Please turn to slide 21 for an overview of Chinese demand factors. Iron ore imports continued to grow with Q1 up 16% year-on-year and February reaching 91 million tons. Demand strengths have been driven by robust domestic steel production and overall positive sentiment in regards to construction and infrastructure spend. There has been an increased volatility in commodity prices as of late, though, causing some uncertainty for short-term outlook. Steel prices are off about 10% from their peak in mid-March, while iron ore prices are down approximately 30%. Chinese iron ore inventories, as depicted in the bottom left corner of the slide, remain at record levels and hovering around 124 million tons or 30% above their 5-year average. Having said that, the upward momentum appears to have plateaued in April. On the top right hand corner, we depict monthly coal imports, which have bounced back in March to 15 million tons. This appears to be primarily attributable to winter heating season, which saw thermal power generation increase by 5% year-on-year. In addition, China is said to have stopped importing coal from North Korea, creating additional seaborne demand. Looking ahead, it still remains unclear whether China will again implement restrictions on domestic coal mining now that the peak winter season has passed. While not specific to China, it’s noteworthy that Cyclone Debbie caused significant disruption in Australian met coal exports in early April to the tune of approximately 15 million tons. And we saw a direct and immediate demand surge for Supramax and Ultramax tonnage out of US Gulf taking coal to Asia. This is obviously a long-haul voyage and one which is not a normal trade route. On the bottom right hand corner, we depict Chinese Coastal Bulk Freight Index. Volatility appears to have increased dramatically in recent months with the index falling in line with recent iron ore price movements. While short term and volatile, prolonged drop in the index could indicate potential Chinese tonnage entering the international market, but we’ve not seen any evidence of this as of yet. Please turn to slide 22 for a brief discussion on the grain markets. According to the USDA, global soybean production is expected to reach almost 350 million metric tons this year, an increase of 8% over the prior year. I think it’s also important to note that this year’s forecast has been revised upward on the back of higher crop estimates for Brazil, Argentina as well as others. On the right-hand side of this slide, we depict Brazilian soybean exports. Levels exceeded 10 million tons, the highest on record. As mentioned previously, one of the reasons why dry bulk rates climbed higher in March was due to soybean exports out of South America. Turning to slide 23, we focus on minor bulks which make up about 50% of the Supramax trade. As mentioned in our last earnings call, fundamentals for pet coke have been strong, buoyed by strong demand from India, which has also a strong ton and mile effect. On the left-hand side of this slide, we depict US monthly pet coke exports converted into Supramax stem equivalents. According to the latest figures, there’s been a dramatic increase year-over-year, which is now back on par with the 5-year average. On the top right hand corner, we depict US scrap exports to Turkey converted to Supramax stem equivalents. Monthly shipments were at a 12-month high and also on par with their 5-year average. Demand strength has been driven by an underlying demand for steel. On the bottom right hand corner, we depict Chinese steel exports. Levels have bounced back from hitting close to a 12-month low and are now hovering around the 5-year average of 7 million tons. Please turn to slide 24 for a summary on short-term expectation and medium-term predications. On the left-hand side, we depict historical BSI along with the related forward curve, or FFA. As you’ll note, the short part of the FFA curve has decreased slightly since our last earnings call, reflecting the 10% reduction in Supramax spot rates off of 2017 highs. This notwithstanding, the FFA markets found some support recently and moved up over the past few days. As we mentioned previously, however, historically, the FFA curve is not a good predictor of future rates, but it does represent a snapshot of current expectation. On the right-hand side, we depict growth projections. For 2017, dry bulk is expected to grow by 2% to 3% as compared with 1% in 2016. As we mentioned previously, we believe dry bulk demand growth could surpass 4% in the medium to long term as and if it reverts towards its historical mean correlation with global GDP growth. This concludes our market discussion and I’d now like to end the call with a few takeaway points. Dry bulk supply demand fundamentals are continuing to improve, especially on the supply side, and we believe Eagle is particularly well positioned to benefit from an improving landscape. Internally, we’re beginning to see the tangible benefits from execution of our active owner operator model. This is evident across several metrics, but most notably the one I cited earlier about the approximate $26 million in incremental annualized Q1 cash flow improvement as compared with Q4. This active owner operator model works in conjunction with other differentiating attributes of our platform. Chief among them are focus on Supramax Ultramax vessels, which we believe offer the greatest potential for outsized returns on capital, a policy of no related party dealings that could otherwise detract from shareholder returns, as well as the use of moderate leverage through the cycle. With very significant changes in our company at all levels, we now have the right team in place to execute on our strategy and maximize shareholder value. And we continue to believe Eagle offers a superior platform for investors seeking exposure to the dry bulk market. I’d now like to turn the call over to the operator and answer any questions that you may have. Operator?

[Operator:]

Thank you. [Operator Instructions] And our first question comes from Magnus, Seaport Global.

[Magnus Fyhr:]

Good morning. Just a question on – you guys were pretty early in starting buying assets. Asset values have moved up here quite considerably in the last month. I notice that you’ve chartered-in the vessels. Do you currently see better opportunities in the chartered-in market versus buying assets outright?

[Gary Vogel:]

Yes. Thanks, Magnus. I would say there are two distinct paths for us. The chartering market we see opportunities. And as I mentioned on the previous call, the period charters that we do, we do structured where we sell FFAs against the fixed period and take the optionality from the back-end. So, those are distinct. I wouldn’t say that the opportunities are better there. As you know, it was a significant transaction for us acquiring the nine vessels. So, at this point, we’re digesting that, but we still believe that there is opportunities in terms of asset acquisitions that we’re still in the early part of a market recovery.

[Magnus Fyhr:]

Okay. And just on the cost savings front, you’re saying you’re on track to get on your goal for 2017. Is there much more that you can squeeze out of those cost savings than the 2017 stated goal?

[Gary Vogel:]

Yes. I think there are incremental benefits as we develop our processes and build out the company, but the lion’s share, the heavy lifting, if you will, has really been taken out. So, as you can see, it’s a 2% savings from where we were at the end of the year. So, I don’t see significantly more. I think focus on safety and quality has to be paramount, with costs coming in third.

[Magnus Fyhr:]

All right. That’s all I had. Thank you very much.

[Gary Vogel:]

Thank you.

[Operator:]

Thank you. And our next question comes from Amit Mehrotra from Deutsche Bank. Your line is now open.

[Amit Mehrotra:]

Thank you. Hey, Gary. Hey, team. Thanks for taking my questions. First one is just thoughts around the capital structure. The company is, obviously, in kind of fantastic shape with respect to the balance sheet. It certainly wasn’t easy to get where you are today. You talked about looking to apply "moderate leverage" I think a couple of times in the call, specifically on the Ultramax fleet. I want to know if you can just provide a little bit more color on that. Maybe it’s just a kind of a philosophical question about what moderate leverage is, especially given where we are in the cycle. And kind of related to that – maybe directly related to that, the company, obviously, has this large chunk of debt coming due in 2019, if you could just talk about the timing of addressing or rather refinancing that. Thanks.

[Gary Vogel:]

Sure. Thanks for the question, Amit. We mentioned it on the last call. We right now are defining moderate leverage at less than 50% on the fleet acquisition and that’s the level that we’re approaching. But I would characterize that moderate, it depends on where we are, given cash flows and where we expect it to be. The market has taken a step back recently and I think that speaks to why we don’t want to overstep and put on too much. As much as we’re very confident in the overall supply/demand fundamentals, we do see significant volatility in dry bulk and we’d rather err on the side of being conservative here. Having said that, as the market recovers and cash flows step up, we fully appreciate that additional leverage may be appropriate.

[Amit Mehrotra:]

Okay, understood. And then just kind of piggybacking on Magnus’ question with respect to values, asset values, the market has, obviously, cooled a little bit. You guys kind of play in a more resilient segment of the dry bulk market. If you could just talk about maybe what bids look like in the market or potential acquisitions getting a little bit more competitive in terms of number of buyers, any color on that would be helpful.

[Gary Vogel:]

Sure. As you mentioned, our market is a bit more resilient. We’re down about 10% from the highs thus far. So, it doesn’t have the same volatility. In terms of asset values, they took a significant step up. And I think they’ve – essentially, they’re taking a bit of a breather. They’re not coming down at all, but there seems to be less of a frenzy, if you will, in terms of the amount of inspections going on. As I mentioned to Magnus, we’re digesting the nine-vessel acquisition at this stage. So, we’ve taken a bit more of a backseat approach at the moment. So, we’re not actively inspecting vessels at this time, but there definitely seems to be still plenty of people who are out there, although not at the pace it was a month, month-and-a-half ago.

[Amit Mehrotra:]

Got it, okay. Well, that’s helpful. Let me ask one last one, if could. Just on the market, there is this kind of emerging theme that people like me like to talk about, shipping essentially becoming potentially a more sustainable business model. And that really has to do with maybe some of the regulations on the horizon. There is the ballast water, obviously. To some degree, that may help. But the sulfur cap, I think, could potentially be a really big deal. I just wanted to get your sense on this. I feel like, Gary, you maybe usually have a pretty fair and balanced assessment of the market. So, we’d just like to get your thoughts on, if you think the regulations could really be a game changer for the industry or maybe it’s just kind of more of a talking point for people that are positive on the market?

[Gary Vogel:]

Thanks. No, I absolutely do think that these regulations are significant in terms of – if you want to call them game changers or not. Each one of these regulations creates a higher barrier to entry and smaller players simply won’t have the capacity to approach them at least cost effectively. Ballast water treatment is a significant engineering situation on one or more ships. And if we have the scale to approach it, clearly, there are benefits to that. And in terms of the sulfur, we’re still a few years off here and it’s definitely early stages [indiscernible]. But in terms of scrubbers and what have you, again, significant engineering and assessment – not to mention – capital. So, these regulations benefit larger companies. Having said that, the most important thing for us is to have visibility and clarity and ballast water as an example has been really problematic for everyone because of the different approach from IMO and from the US Coast Guard. So, in some ways, we welcome that because, as I said, I think it benefits the better capitalized, larger companies. But having clarity as to what those regulations look like is really something that we value and would welcome.

[Amit Mehrotra:]

Just a housekeeping one. Can you talk about – the number of drydocks is really increasing next year. Can you just talk about the maintenance-related CapEx that steps up in 2018? And then, in terms of – just related to your comment about the less well capitalized players maybe being able to make those investments, in the dry bulk market, if you have a handful, or if not, a little bit more very well capitalized companies that are in a position to make investments, could the CapEx really step up later this decade to install things like scrubbers, so that those companies are essentially well positioned when the less well-capitalized players kind of have to essentially leave the market or create a maybe a two- or three-tier market? Can you just talk about the specific CapEx next year and then that broader question? And then, I’m done. Thanks.

[Gary Vogel:]

Sure. Absolutely. So, in terms of next year, the CapEx – the number of drydock stepped up significantly as seven of the nine vessels that we’re acquiring are 2013 built and, therefore, those ships relate to that acquisition. And, of course, those are first special survey five-year drydocks. So, less intensive, but, of course, potentially ballast water treatment systems will be installed there. But we’re budgeting for it and very much see it as kind of matter of fact in terms of going through and it’s laid out in our filing as well in terms of estimates for capital expenditures.

[Amit Mehrotra:]

Are those amortized into the purchase price or are they just outright cash outlays next year?

[Gary Vogel:]

Those are outright cash outlays.

[Amit Mehrotra:]

Okay, got it.

[Gary Vogel:]

And then the cost is amortized.

[Amit Mehrotra:]

Okay, great. Thank you so much.

[Gary Vogel:]

Do you want me to talk – I do think also that, in terms of, let’s call, it a two-tier or three-tier market, I do think that you could potentially see that where the ballast water treatment regime from IMO, now with the decoupling of the IOPP essentially, could get pushed out five years where the US Coast Guard is becoming much more stringent. So, you could see a situation where owners decide not to trade to the US either because the vessels don’t need to or they don’t have the capital to invest in ballast water treatment. So, you definitely could see a potential two-tier market where you have vessels that are able to trade to the US and a growing fleet of vessels that are unable to. And I do think that there is an opportunity for the better capitalized companies potentially to take advantage of that as we go forward.

[Amit Mehrotra:]

Okay, got it. Hey, thanks, Gary. Appreciate you answering my questions. Have a good one.

[Gary Vogel:]

Appreciate it.

[Operator:]

Thank you. At this moment, I’m not showing any further questions. I would like to turn the call back to Gary Vogel for any further remarks.

[Gary Vogel:]

Thank you. We don’t have any closing remarks. But I’d like to thank everyone for taking the time to be with us today and wish you a good day. Thank you.

[Operator:]

Ladies and gentlemen, thank you for participating in today’s conference. This concludes today’s program. You may all disconnect. Everyone, have a great day!