Eagle Bulk Shipping Inc.
Q2 2017 Earnings Call Transcript

Published: 8 Aug 2017

[Operator:]

Greetings and welcome to the Eagle Bulk Shipping Second 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 call over to Gary Vogel, Chief Executive Officer of Eagle Bulk Shipping. Sir, you may begin.

[Gary Vogel:]

Thank you and good morning. I'd like to welcome everyone to Eagle Bulk's second 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. Our discussion today, also include certain non-GAAP financial measures including EBITDA and adjusted EBITDA. Please refer to Slide 31 in the presentation in our earnings release filed with the Securities and Exchange Commission for more information concerning non-GAAP financial measures and reconciliation to the most comparable GAAP financial measures. Now please turn to Slide 3 for the agenda of today's call. We will first provide you with a brief update on our business and proceed with a detailed review of our second quarter financials, followed by an update on industry fundamentals we will conclude with some closing remarks and then open up the call for any questions. Please turn to Slide 5. It's been an active few months at Eagle as we continue to execute on our plan of developing the operating side of the business while renewing and growing our own fleet and increasing the Company's financial flexibility. I'm pleased to report that our focus on active management is yielding positive results. Eagle generated at TCE of $9,147 for the second quarter outperforming the Baltic Supramax Index by almost $1,450 per day which equates to 19% want to adjust it for our fleet specifications. Our strong performance on the revenue side helped drive a doubling of EBITDA quarter-on-quarter. In terms of sale and purchase we remain very busy. Since the beginning of the second quarter we've taken delivery of 8 Crown-63 Ultramaxes acquired from Greenship Bulk we just one vessel now remaining to be delivered. Separately and as part of our objective to renew and optimize the existing fleet we sold to two 2008 build Diamond 53 Supermaxes. It's worth noting that both of these vessels are deferred drydocked within the next 12 months. Lastly, I'm pleased to report that we closed down $61.2 million five-year credit facility which bears an interest margin of 295 basis points with no amortization payments until 2019. This facility which can be upsize to 100 million increases the Company's financial flexibility and provides additional dry powder for further potential vessel acquisitions. We'd like to thank ABN, SCB as well as DVA who a new lender to Eagle for their support in this transaction. Please now turn to Slide 6 for discussion on our operating business. Over the past year and a half since Eagle began transforming its business from being a tonnage provider to an active owner operator. The Company's been increasing its third-party chartered-in business. In the second quarter our chartered-in business resulted in 744 total operating days across 19 distinct ships. To put this in perspective the cumulative annual growth rate since the third quarter of 2015 is over 230%. As you can see this growth is continuing as we've already contracted 755 days in the third quarter and we're only five weeks into the quarter. We chartered-in third-party ships in order to supplement and complement our own fleet business and create arbitrage opportunities around certain vessel and cargo position. The objective of our operating business is to generate a positive contribution to our owned fleet business, improving the overall TCE performance. And this is exactly what we accomplished during the second quarter. Please turn to Slide 7. As indicated earlier, the net TCE for our owned fleet for the second quarter was $9,147 per ship per day. This figure incorporates the performance of both our owned and chartered-in fleet as well as the realized P&L from any FFA and bunker hedging. When comparing our TCE performance to the Baltic Supramax Index, net of commissions and adjusted for the profile of our owned fleet makeup in terms of deadweight and design, we calculate that Eagle outperformed the market by approximately 19% for the quarter or almost $1,500 per vessel per day. Averaging this with our first quarter performance, we've achieved an outperformance of over $1,000 per day which equates to about $16 million of incremental cash flow on an annualized basis. Another way to look at our net TCE result of $9,147 per day is to normalize to an Ultramax fleet. In this regard, if we assumed all of our ships had the deadweight and design of our newly acquired Ultramax vessels, a similar result would have equated to TCE of almost $11,000 per day. While this is a theoretical exercise, it speaks to the value creating potential inherent in our business model as compared with that of a tonnage provider. In terms of third quarter outlook, we currently have 67% of our third quarter available days fixed at TCE of $8,150 per day. This is down from the second quarter due to both the underlying market being lowered in June and July when many of these days were contracted as well as the impact of repositioning newly acquired vessels into the Atlantic. On the lower left hand corner of the Slide 7, we depict the percentage of our fleet trading in the Atlantic region. As you will note that notwithstanding the outperformance in the quarter, we increased our Atlantic exposure from 56% to 68% and this was done despite taking delivery of six out of the eight purchased vessels within the Pacific region. As we've discussed before, the Atlantic market typically trades at a premium to the Pacific and aside from generally being a preferred market front hold rates back to the Pacific are typically almost double that of the spot index. So these outsized Atlantic positions represent meaningful pent-up value. Please turn to Slide 8 for a brief update on our fleet profile and makeup. As mentioned earlier on the call, we've now taken delivery of eight Crown-63 Ultramax's from Greenship Bulk with just one more remaining to be delivered. On the sales side, we sold two of our 2008-built time in 53 Supramax's, the Woodstar was delivered to her new owners in July and the [RAN] is expected to be delivered to her new owners in October. On the top right hand corner, we depict our owned fleet development since we began to implement our strategic plan. As you all note, we've acquired a total of 11 Ultramax's averaging over 63,000 deadweight tons and just 3.1 years in age at purchase. And we sold a total of eight ships which averages approximately 51,000 deadweight tons and 13 years in age. Each of these ships sold was due for drydock within one-year of its sell date, avoiding these drydocks to save the company over $7 million in CapEx. Each time we acquire a newer larger and more efficient vessel or sell a smaller older and less efficient one, we upgrade our overall fleet and improve our ability to generate higher TCEs and incremental value. In this regard, Eagle's pro-forma owned fleet now totals 47 ships equating to over 17,000 annual vessel days with an average of just 7.7 years. Subject to market development, we intend to continue executing on our fleet growth and renewal strategy, selling off some of the older and less efficient ships while purchasing newer and more efficient ones. In this regard, I believe we're 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. Please turn to Slide 10 for a summary of our second quarter 2017 financial results. Revenue net of commissions for the second quarter was $53.6 million, an increase of $7.7 million or 17% from $45.9 million in the prior quarter and an increase of $28 million or 110% from $25.6 million in the same period in 2016. Total operating expenses for the second quarter of 2017 were $53.9 million, an increase of $3.6 million from the prior quarter and an increase of $11 million for the same period in 2016. The Company reported a net loss of $5.9 million for the second quarter as compared to the net loss of $11.1 million in the prior quarter and the net loss of $22.5 million in the same period in 2016. Net loss per share in the second quarter of 2017 was $0.08 versus a loss of $0.17 in Q1 2017. Adjusted EBITDA came in at positive $9.3 million for the second quarter, an increase of $4.7 million from $4.6 million in the prior quarter and an increase of $16 million from negative $6.7 million in the same period in 2016. Now please turn to Slide 11. In the slide, you will find a walk from net loss of $5.9 million to adjusted EBITDA of positive $9.3 million. You will note that the business is profitable in the quarter as measured by both EBITDA and adjusted EBITDA. Now please turn to Slide 12, for a review of the changes in cash flows. In Q2 2017, net cash used in operating activities was $3.3 million. As the chart at the top of the slideshows, the positive trend in cash flow from operations continues with cash flows used in operation significantly improved from the low of $19.5 million in Q1 2016. If changes in operating assets and liabilities are excluded, primarily working capital, cash flow from operations was positive $4.9 million in the quarter, up from positive $2.1 million in the prior quarter. Let's now turn to Slide 13 for an overview of our balance sheet and liquidity. The Company had total cash and cash equivalents of $68.7 million as of June 30, 2017 down from $145.8 million at the end of Q1. The cash balances lower in the quarter on the purchase of the Greenship vessels partially offset by the new debt facility proceeds. As a reminder, the cash balance in Q1 2017 was boosted by the net proceeds of $96 million from the second private placement, which closed in January. Accounts receivable increased by $2.5 million from the prior quarter to $11.3 million at June 30, 2017. The increase in AR was subsequently received in early Q3. Inventories increased by $3.8 million from the prior quarter to $12.6 million at June 30, 2017. The increase is mainly due to higher bunker prices along with the purchase of bunkers for the Ultramaxes that we took delivery of in the quarter. The Company's total liquidity as of June 30, 2017 was $93.7 million and is comprised of total cash of $68.7 million plus the undraw revolving credit facility availability of $25 million. Total debt, which is net of debt issuance, less discount cost stood at $297.2 million as of June 30, 2017. The outstanding debt under the first lien facility as of June 30 was $203.8 million, down $2.4 million from the end of Q1. The term loan balance was $178.8 million and the revolver balance is $25 million. We did not draw on the revolver in the quarter. Since the Company's refinancing in Q1 2016, we have repaid $10.9 million of the term loan, which includes $2.4 million paid down in Q2 on the sale and delivery of the Sparrow. The outstanding balance for the second lien facility as of June 30, 2017 was $72.3 million. The new debt facility was closed on June 28, with a draw of $40 million on six of the nine Greenship vessels that had already delivered. To draw on the final three ships is expected to bring the total loan proceeds to $61.2 million by the end of Q3. Let's now review Slide 14 for an overview of OpEx. As mentioned during our previous earnings call, we continue to focus on creating cost efficiencies while investing in our existing fleet in order to upgrade our vessels and improve technical performance. While Q2 OpEx came in above our full-year 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. Excluding extraordinary items relating to certain upgrades as well as the two vessels that were sold OpEx for the second quarter of 2017 was $4,726 per day essentially flat quarter-on-quarter. Now turning to Slide 15, you will find an overview of our drydock schedule. The chart depicts actually and forecast to drydocks by year. As you will know we are now completing three drydocks in 2017 which is an increase from our last earnings call. We took decision to advance two drydock some early 2018 in order to upgrade whole coatings which will result in improved vessel performance as of an earlier date. It is important to note that doing these drydocks earlier than the required statutory date does not affects future docking requirements. Looking ahead we have a 11 vessels scheduled for drydock in 2018. The breakdown is as follows

[Gary Vogel:]

Thank you, Frank. Please turn to Slide 18. Starting from early February when the BSI had a seasonal low $6,900 per today. Supramax rates rallied 45% to over $10,000 by late April. This was on the back of positive developments for South American grain exports as well as increased coal trade. As indicated earlier on the call although the second quarter started off strongly rates were somewhat volatile and went on a downward trend reaching a low of $7,400 by early mid-June. Ultimately the BSI ended up averaging $8,600 during the second quarter up 5% quarter-on-quarter or 48% year-on-year. It's worth noting that the spot BSI is back up in the mid-8's as of today similar to the average of Q2. Although rates have been showing improvement over the past year or so it's important to note that they remain at low levels from a historical perspective. Excluding the extremely high markets of 2007 and 2008 to 10 and 15-year historical averages are around 13,000 and 16,000 respectively. Please turn to Slide 19, for a brief update on fleet growth. Newbuilding deliveries continue their downward trend from a historical perspective, but still remain at elevated levels. Deliveries totaled over $9.5 million deadweight tons during the second quarter or approximately 118 vessels a decrease of 47% quarter-on-quarter and 10% year-on-year. Comparing the first half of 2017 with the prior year deliveries are down around 4%. Looking ahead we expect deliveries will be lower in the second half of the year as compared with year-to-date figures. Demolition of older tonnage amounted to 3.5 million deadweight tons during the quarter or roughly 69 vessels representing a decrease of 20% over the prior period and 58% year-on-year based on deadweight tons comparing the first half of 2017 with the year prior scrapping is down almost 65%. This is not surprising given the general improvement in the rate environment. It's important to note though the decrease in scrapping has been primarily attributable to less Cape's going for demolition. During the first quarter, 14 Capes were scrapped versus just five in the second quarter, while in the Handymax sector covering ships of 40,000 to 65,000 deadweight, 27 ships were scrapped in the second quarter as compared to 14 in the prior period, an increase of almost 90%. Positively scrap rates are currently hovering around $380 per lightweight ton which is a 30-month high. Given the current and expected rate environment and scrap price levels, we believe demolition should at least continue at its current pace. This would imply roughly 17 million deadweight tons getting strapped in 2017 equating to about 2% of the on-the-water fleet. Please turn to Slide 20 for a brief look at forward supply. New orders placed during the second quarter totaled 65 ships equating to 7.1 million deadweight tons with Panamax's and Cape's representing roughly 82% of the orders placed. Although, there's been an uptick in ordering since last year, it's important to note that level still remain at the lowest it's been in 20 years and at this moment given relative pricing differential between secondhand ships and newbuildings, high steel prices and the general lack of capital, we are cautiously optimistic that we will not see a material increase in ordering in the near future. The order book is now down to a historically low level of just 8% of the on-the-water fleet. Dependent on eventual ship deliveries during the second half of this year and scrapping, net supply growth for 2017 is expected to be anywhere from 2% to 3%. This figure has been revised higher primarily due to lower scrapping thus far. Looking ahead, the supply side fundamentals continue to improve with [less and less] ships expected to get delivered over the coming months and years and we believe this bodes well for the market and rates overall. Let's now take a look at the demand side. Please turn to Slide 21 for discussion on the grain market. Global grain seaborne trade expected to reach over 500 million metric tons in 2017 representing a strong increase of over 5% year-on-year. This is an important trade for Eagle as Supramax's and particularly Ultramax's tend to spend a significant amount of time carrying grains. One of the biggest drivers in the grain trade growth has been soybeans, which now represents almost 30 plus year old trade. Soybeans which are high in protein and fiber content are processed [indiscernible] which is typical used for animal feed in soybean oil which is used for food production, but also in manufacturing of plastics and other products. Chinese appetite for soybeans has remained strong. The cumulative annual growth rate of its imports as depicted are located on the lower left hand corner of the Slide 21 equates to approximately 12% for the past four years. Product has been primarily saws by the U.S. and Brazil both representing a long haul Voyages and as such contribute to higher ton mile demand. Please turn to Slide 22 for a look at Minor Bulk. Upward momentum on steel prices has pushed scrap prices higher as well leading to increased trade in the commodity. On the top right hand corner of Slide 22, we depict Turkish scrap import prices which are now trading over $330 per metric ton which is above their five-year average. The global seaborne scrap trade is expected to reach 107 million metric tons in 2017, an increase of 5% year-on-year. Cement demand has also been robust with seaborne trade as depicted in the lower right hand corner chart expected to reach 112 million tons for 2017. This is 6% above its five-year average. Increasing trade demand can be attributable to improving global economic growth and a general increase in infrastructure projects. Please turn to Slide 23 for a review of Chinese demand drivers. Iron ore imports remain firm second quarter totaled almost 270 million metric tons essentially flat quarter-on-quarter. Demand strength has been driven by continued domestic steel production and the overall positive sentiment in regards to construction and infrastructure. Iron ore prices have been rallying for the past month and are not trading above their 200 moving day average of $72 per metric ton. This momentum is on the back of improving sentiment for domestic construction with property investment increasing by 9% during the first half of 2017 to 5 billion Chinese yuan. Total imports for 2017 are expected to reach almost 1.1 billion, an increase of 7% year-on-year. Chinese iron ore inventories has depicted in the bottom left hand corner of Slide 23 appear to have sub totaled around 130 million metric tons since May, but remain at record levels and significantly above their five-year average. On the top right hand corner, we depict the monthly coal imports, which appear to be around their five-year average level of 18 million metric tons. Total coal imports for the year are expected to reach 235 million metric tons, an increase of 4% year-on-year with the majority of its growth coming from Australia and Indonesia. Lastly on the bottom right hand corner chart, we depict Chinese minor bulk imports. For full-year 2017, imports are expected to reach $295 million metric tons, an increase of 8% year-on-year, which would represent a four-year high. Contributing to this is increased imports of bauxite, manganese ore, nickel ore, steel, and general aggregate products. Please turn to Slide 24 for a summary on short-term expectations and medium-term projections. For 2017 drybulk growth has been revised upwards and now it's expected to grow by at least 3% as compared with just 1% during 2016. This positive revision follows strong demand from China as well as the general improvement in global GDP, which is expected to come in at 3.5% for 2017. As we've mentioned previously, we believe drybulk demand could surpass 4% growth in the medium to long-term if it continues to revert towards its historic mean correlation with global GDP growth. This concludes our market discussion. I would now like to end the call with a few takeaway points. Please turn to Slide 26. Drybulk supply demand fundamentals that continuing to improve and we believe Eagle is particularly well positioned to benefit from an improving landscape. As we continue to execute on our new business strategy and make investments in our fleet and our infrastructure to tangible benefits of our plan are increasingly apparent. We've taken a series of actions to modernize and optimize our fleet with the goal of becoming the leader in the Supramax, Ultramax segment. These are the most flexible vessels in the global fleet with the capability to carry both major and minor bulks, essentially any type of drybulk cargo. The rate environment for these vessels is also less subject to volatility as seen for a larger vessel types. We enhanced our earnings potential by actively chartering in third-party vessels to both capture revenue generating opportunities and expand our commercial footprint. This requires significant internal capabilities and we believe that the investments we've made towards building out the Company's infrastructure, market intelligence and risk management will enable us to continue to profitably grow our third-party business. Importantly, our third-party business is being built on to an ownership platform that has a large commercial scale with a 47 vessel core fleet. Financially, we're also well positioned, having implied moderate leverage to our balance sheet. This allows us to pursue further opportunities to grow our own fleet and we're committed to best-in-class governance across all aspects of our business. We are pleased with what we've been able to accomplish over the last 18 months, this applied to our financial performance and more importantly to the platform we've created. We believe the Company has been positioned in a manner that clearly differentiates us in the market and that our strategy will result in significant value creation for our shareholders as the market continues to improve. I would now like to turn the call over to the operator and answer any questions you may have. Operator?

[Operator:]

With the prepared remarks completed, we will now open the line of questions. [Operator Instructions] Our first question comes from Magnus Fyhr of Seaport Global. Your line is open.

[Magnus Fyhr:]

Hey, good morning. Just a couple of questions, first with BDI here taken up again, I mean how do you look at - how do you see that S&P market currently is getting more difficult to get the high quality ships or is it still opportunities there, I guess it's not a real price, but maybe you can elaborate on that a little bit?

[Gary Vogel:]

Sure. Good morning, Magnus. What we've seen over the period of time as the market backed off from the activity in the spring is that the bid asked widened on the S&P, but we didn't really see values coming down today as we move towards summer and the expectation would supply demand fundamentals improving. I think that's narrowing again. There's definitely still considerable amount of vessels available and we continue to look at opportunities in that regard. So it's really more a matter of deciding what assets you want to go after, but we don't see any kind of limitation in terms of vessels to be acquired.

[Magnus Fyhr:]

Thank you and also the vessels that you have earmarked for sale. Is it the survey's upcoming survey for these vessels are going to trigger the sale of these or do you kind of want to maintain the current vessel count of close to 50 vessels or what's - could you sell some of these vessels are not replace them if it's difficult to find a new candidates.

[Gary Vogel:]

Yes, so we don't have a magic number that we want to keep in terms of fleet size and it's not just the special survey date that now would trigger a sale. We see it as - we want to continue to sell off although us sufficient ships when we can go what we believe is appropriate value for them and as I mentioned we don't see a problem in acquiring you know vessels that we deem to be appropriate and that we want for the fleet. So we see them as separate transactions but we wouldn't - we don't see any major change in the fleet size going forward in the short-term.

[Magnus Fyhr:]

Okay. And can gears up - going to Slide 15, I guess it mentioned there that you got extensions from the U.S. Coast Guard to at least through 2018. I think Frank said 2019 on the call and I think the most recent that we've seen is that they get the word about treatments have been pushed out some 2019 and you just kind of clarify that?

[Gary Vogel:]

Yes, so, there's two teams in place one of the IMO right which is recently decided to push out those dates. Having said that most owners including Eagle have done what's called decoupling of the IOPP renewal which was the gating issue for the IMO. Having said that the U.S. Coast Guard has its own requirement which officially has already gone into effects so without extensions even with the IMO deferral calling on the United States you would need to have a Ballast Water treatment system in place or have that extension and for us the United States is an important area particularly for loading for export and so we see that as you know being an absolute that we would not operate ships without Ballast Water treatment even if I am allowed it because we need to be able to trade to the U.S. So that's what we depict here is the requirement under the U.S. Coast Guard extensions as they stand today.

[Magnus Fyhr:]

Okay. Great thanks for clarifying. I just one last question looking at the TCE rate for the quarter of $9,147 per day you know if I take the written that revenues of $40.3 million divide that would almost 4,500 days I get to 8,900 a day. Is that the difference the FFA's so or that's about 900,000 for the quarter. So it's a pretty significant but is that the FFA's that makes up the difference?

[Gary Vogel:]

Yes, I mean thanks for that because I think it's good to be able to clarify it. So I mean essentially what we do is we take all of the net revenue for third-party business and we apply it over the net P&L if you will positive or negative including FFA result as well as banker hedging. So a significant part of that is the realized FFA gain or loss with the one thing we also do as you may recall we have one long-term legacy charter that was a Japanese handy size vessel that we recently swapped into an Ultramax that legacy charter we exclude from our TCE performance because you would unduly impacted. So when we calculate our beat because that was something I was done back in 2010 we don't see it as part of Eagle's business model today so that's how we calculate it.

[Magnus Fyhr:]

Okay. Great. That's all for me. Thank you.

[Gary Vogel:]

Okay. Thanks Magnus.

[Operator:]

Thank you. Our next question is from Amit Mehrotra of Deutsche Bank. Your line is open.

[Amit Mehrotra:]

Yes, thanks, so much operator. Hey everybody thanks for taking my question. So I wanted to just follow-up real quickly on the fleet task question that was just asked. Gary maybe just approaching it from a different perspective is there if you look at the fleet today and the size of fleet today is the company at optimal economies of scale at the current size or maybe other additional synergies on the cost side particularly is it relates to some of the just the OpEx and G&A side of things are there opportunities there from getting a little bit bigger is kind of critical mass right now to achieve that optimal level.

[Gary Vogel:]

Sure. Good morning, Amit. So the way we look at it is that scale in and of itself won't get us to where we need to be. But if we can demonstrate that we have the ability to generate you know higher market returns on our assets then scale is definitely beneficial. It's beneficial as you said from a cost standpoint but also from a business intelligence standpoint and from efficiency standpoint. So having a larger fleet given that we're able to demonstrate the ability to generate those incremental revenues, we think is definitely beneficial. Also as you know we have three offices now having opened an office about one-year ago in Europe and if we were to be able to grow the Eagle fleet then I think you would see us opening small regional offices all with the desire to get closer to cargo and decision makers better market intelligence and efficiency. So a larger scale to a point definitely is beneficial and long-term we see ourselves going in that direction.

[Amit Mehrotra:]

Okay. And then just kind of related to that on the OpEx front, obviously the OpEx is pretty low already at sub $5,000, but there are other drybulk companies that are quite a bit lower than that for good reasons and bad reasons probably, but if you can just talk about whether there's more opportunity on the OpEx front in terms of maybe I don't know you know insurance or more purchasing power given the bigger fleet that would allow you to bring that number down or is that kind of a good run rate to go forward over the next several quarters or even a couple years?

[Gary Vogel:]

Yes. So I mean it's a good question. First of all, I think Frank mentioned OpEx should be seen over a multi quarter, but the main focus is to run safe environment sound and reliable ships and then to do it economically. So OpEx is an output not a target for us and so when we identify work that needs to be done or something will commit the capital and as you know we've been doing discretionary work in that regard. So I do think there are efficiencies to be gleaned and we're improving process, we've brought OpEx down significantly. I think the heavy lifting has been done. So ultimately, I think there should be more savings, but we're not targeting. I think a similar run rate to where we are is probably a good way to look at OpEx today, but clearly we're always targeting to find ways to improve it somewhat.

[Amit Mehrotra:]

Gary, should we push back to follow-up a little bit on that is, when you see companies out there that are at $2,500, $3,000 a day. Does that - I guess maybe two separate reactions, one is why they're really good and how do we get there? And the second is they must be cutting some corners, so I don't know how you respond to that or how you look at that when companies are able to put up OpEx numbers that are half of kind of what you guys are doing sub $5,000 a day?

[Gary Vogel:]

Yes. So what I would say to that is that OpEx inputs are pretty transparent and we know what they are and I have been in this business a long time, so I think you need to look at how you derive those kinds of numbers, number of ship days, does it take into account everything including fees paid for certain services and what have you. So without an in-depth look as opposed to a headline number, I think it's very hard to compare in that regard.

[Amit Mehrotra:]

Okay. That's fair. I'll let me just ask one more on the cash breakeven as it relates to maybe the debt service and the debt repayment. Can you just talk about the evolution of the cash breakeven when some of the amortization kicks in and when we can expect maybe an increase in that later this decade and just any color on there?

[Frank De Costanzo:]

Hi, it's Frank. The net interest expense by Q4 will get up to about $800 a day as the Ultraco, the new debt facility on the Greenship's kick in. And then we begin to look at amortization in 2019 until 2020 and you could look at, at least a $1,000 there additional at that time.

[Amit Mehrotra:]

Got it. Okay. That's super helpful guys. Thanks so much. Have a great summer.

[Frank De Costanzo:]

Thanks.

[Operator:]

Thank you. Your next question is from Fotis Giannakoulis of Morgan Stanley. Your line is open.

[Fotis Giannakoulis:]

Yes. Hi Gary. And congratulations for the result performance of your Supramax fleet. Can you give us a little bit more color what are the steps - the specific steps that you have taken? Is it a better information that you have or arbitrages that you have managed to take advantage. What I am trying to understand how sustainable this outperformance is?

[Gary Vogel:]

Yes. Thanks, you appreciate that. Really it's a multi strategy, so there's not any one thing and you spoke about some of it. First of all, we are having three offices globally that communicate and being there 24/7 as opposed to being here and being six hours behind Europe, 12 hours behind Asia, we have people focused on that, we're close to decision makers, we're booking more and more cargo on voyage basis which means we're dealing directly with decision makers not with operators. That also gives us the ability to use Eagle ships for carrying those cargos, but because they're done on a per one basis. We can - vessels which gives us optionality and in creating that arbitrage. We've also chartered a number of ships over the last 12 months for one-year period where we sell FFAs to hedge the market risk, but we maintain the optionality on the - we keep the optional period, which of course is only upside because we can ship - at the early part and in what has been a rising market, those also add two to it. So it's a combination of the platform, the team the arbitrage and the methodology and a focus on risk management. So in that regard, it's really a number of things, but it's things that my colleagues and I have been developing over many years and we're confident that can add values throughout the cycles.

[Fotis Giannakoulis:]

Thank you for that. I'm trying to understand if your model is moving closer to that of a logistics company and if there are any additional profits that you can achieve by providing services from apart from the direct point-to-point shipment meaning the logistics that port handling and other operations that the additional shipping companies do not provide at this point. Especially in the U.S., I understand that there are a lot of cost in transportation going Inland River - handling the cargoes beat you on the additional port. Are these kind of opportunities that you might be exploring in the future?

[Gary Vogel:]

Yes, so I would say that never say never, but we are primarily, where we're a ship owner, active operator with the idea that our active operations will supplement that owned. And if we see opportunities to provide further inland transportation, I have done so some of that work in my career and we will clearly look at opportunities to do that. But I wouldn't want to guide to the fact that there's other revenue streams for Eagle over and above in the primary business model that we've articulated as of today. So - but we're always open to opportunities and as I said we're getting closer to decision makers in both shippers, traders and receivers and if we can provide services to them that had incremental benefit to Eagle on a risk adjusted basis. We will definitely pursue them.

[Fotis Giannakoulis:]

Thank you, Gary. One last question about the trade, you obviously have a very good view of what - of several type of commodities. You mentioned above the improvement in the grain trade, can you elaborate a little bit more - can you tell us, which type of commodities they have shown notable changes versus the prior quarter? And your take about the macro picture on the commodities, and how this flows are changing?

[Gary Vogel:]

Yes, so I mean in terms of the grain, it's clearly soybeans are driving the lion's share of that 5% growth. As I mentioned 12% annual growth rate over the last four years and that's really primarily driven by Chinese demand and it's a change of the domestic consumption there. So that's been very positive, especially because it's a long haul. Minor bulks overall - one of the benefits of them is - it's quite diverse. So when you have certain cargoes improving, other ones not, but scrap is definitely increased significantly and that's on the back of steel prices being up, cement into the U.S. Gulf has also been strong recently and pet coke exports extremely strong as we alluded to. So - but the thing about this is definitely positive and what we look for overall when we see a market move is it a singular commodity and is it just seasonal like a grain or do we see a broad-based and we look to broad-based demand improvement as kind of a bellwether for global economy getting better and overall demand and I think the fact that we're speaking about various commodities in the minor bulks aside from of course iron ore, coal is very positive and aside from the minor bulks, I mention bauxite is also up significantly. So we're seeing quite a few cargoes better positive and of course that bodes well against the supply side that we spoke about.

[Fotis Giannakoulis:]

Thank you very much Gary. That's very helpful.

[Gary Vogel:]

Thank you.

[Operator:]

Thank you. Your next question is from Espen Landmark of Fearnley. Your line is open.

[Espen Landmark:]

Hey, good morning, guys. I wanted to ask on the outperformance versus the BSI I know you're just in for the size in the comparison but you know what kind of rate differentials are you seeing for your you know early 2000 Supramaxes versus the more the Ultramaxes.

[Gary Vogel:]

Yes, so I mean we don't speak specifically about individual ships in that regard, but I think in broad terms Supramax has get down in the low-90's as in general terms as you know compared to the test 52, the BSI test 52, Ultramax is up in the mid-teens 115. And so you can see it spread as much 25% there outliers further down and above but you know that kind of low mid-90's for first you know earlier Supramaxes is probably a good general number to go it. I don't think in just a follow-up as and I think that's really important I could ultimately that's where you know the asset value comes from and this is really not about a headline number of TCE. It's about generating a return off of an asset and off the capital deployed. Right so the chartering team absolutely likes the newest best ships and there's a lot of reason but it's ultimately comes down to outperformance. So if one of our Ultramaxes is beating the index by 5% we see that as a mess on our side and we're up to why and what's happening conversely as I mentioned earlier super which may trail the index by 5% couldn't you know we can equate that to real value creation depending on the specification of the ship. And again that's specification goes to the asset value. Right, so it's about a year.

[Espen Landmark:]

Do you kind of the rough split in terms of you know the percentage of pictures on a TCE base and what's going on Voyage or put some basis currently?

[Gary Vogel:]

Yes, we don't go quarter-to-quarter on Voyage basis you know having said that it's I think what I would say is that amount of business we're doing on Voyage basis is increasing on a quarterly basis and our goal is as much as possible. Our goal is to do it on Voyage basis and the reason as I mentioned to you that when we have Voyage basis we can use any of our ships and other ships as well and where you usually dealing decision maker. So you know I think historically if we look we had disclosed probably about a third on Voyage basis but we expect that number to increase as we go forward. And we also our booking more and more cargoes you know on a forward basis contracting individual cargoes as well as small CoAs always as we build out the cargo book for Eagle.

[Espen Landmark:]

That's helpful. And just a final one I mean you speaks about potential asset acquisitions. Asset values has come down a bit and then last week we saw one of the larger drybulk operators going out and enquiring assets for the first time in a while. How do you see kind of the chart of the market versus the asset market right now?

[Gary Vogel:]

I mean they're - obviously there's a correlation and what we saw back when we did the Greenship Bulk acquisition there was a lot of optimism the forward market on the physical was higher. So you could walk and returns in excess of where they are today and so that that bodes well for at for supporting the asset price because you could take kind mid upper single-digit return on levered on that asset whereas today. If you look at the asset price paid you know that number has dropped off. So there's clearly a correlation but as I mentioned earlier I think it was Magnus's question and that is you know as supply demand fundamentals the general view is that the numbers are improving and we're working through the summer here at relatively stable levels that those asset prices we can we just don't see significant downside in that and owners are holding firm.

[Espen Landmark:]

Okay. Appreciate the color. Thank you, guys.

[Gary Vogel:]

Okay. Thank you.

[Operator:]

Thank you. Our next question is from Clinton Webb of AXIA Capital Markets. Your line is open.

[Clinton Webb:]

Hey, good morning guys. Real quick on the $61.2 million of the new facility, can you remind us what conditions you need to bump that up to $100 million?

[Frank De Costanzo:]

It's Frank. I'll jump in. You actually have to go back to the banks credit committee. So we would - if we had an acquisition that we would like to add moderate leverage to, we would go back to the banks with the transaction, they would run it through credit and then that simple as that. Then we'd work off that document in the event they do, approve it and that would really take a lot of the grief out of papering it up.

[Clinton Webb:]

Understood, and then in terms of potential acquisitions, given the $130 million of liquidity roughly. Do you guys have an ideal ticket size that you guys are looking at or thinking about as ideal, especially given your guys preference to operate sister ships?

[Gary Vogel:]

Yes, I think there's no idea of size and also it really depends on - if you're talking about a transaction of a larger scale, whether that might come with some financing attached in terms of - from existing lenders and what have you. So I think there's clearly a benefit to having sister ships and scale and we're really pleased with the Greenship acquisition and what that's meant to the fleet. But having said that, we're also - don't have anything against going out and acquiring individual assets as well. So as you said, what we believe we've done is created some flexibility here to really widen that scope and we're evaluating opportunities across the board.

[Clinton Webb:]

Thanks. That's helpful, Gary. And then secondly, nice to see the active strategy paying off, just curious - appreciates to that Slide 6, but on the 755 that you guys have booked, it looks like through July. Should we expect to a similar run rate for the rest of 3Q? And how can we expect that number to look moving into fourth quarter?

[Gary Vogel:]

Yes, so we don't give guidance beyond what we've fixed so far and this just to be clear the 755 is the number of third-party days, whereas we've covered I believe a number 67% of the own fleet, which equates to just under - the total for the quarter is 4,000 days, 67% of that's been covered at the $8,150. What I did say is, a lot of what's been contracted thus far was done when the BSI was at lower levels, and so from that you can infer that as of today ships getting fixed today should earn more than ships they got fixed four weeks ago in the markets - four to six weeks ago in the market was a lower. We also of course have the opportunity to do additional arbitrage during the quarter. So we don't give guidance on that, but the market is stronger today than what it has been one of out of these and some of these rates were fixed. And we also spoke to the fact that we took delivery of six of the eight ships and yet still increase the number of a percentage of our fleet in the Atlantic, right and back haul rates are can be $2,000 to $4,000 a day versus outhaul rates in the mid upper teens. So when you bring that in, that impacts it significantly when it let's say if you look at the overall rate for an Ultramax being at $9,000 and you bring in that shipment to the Atlantic at $2,000 into the Gulf or something like that that deficit is $7,000 a day impact significantly on the fleet. It's not gone, it's an investment because now you have a ship that's going to be operating in the Atlantic or potentially you can fix that ship out again in the mid upper-teens and then through this year there's been many times when Ultramax's are getting well in excess of $20,000 a day from the Gulf back out to the Far East. And that's the optionality in the model that you create by having these various positions. So it's definitely lots of a static in terms of revenues, but I'll leave it at that.

[Clinton Webb:]

Appreciate the color. Thanks Gary. That's it for me.

[Gary Vogel:]

Thanks Clint.

[Operator:]

Thank you. I see no other questions in queue at this time. I'll turn it back to Mr. Vogel for closing remarks.

[Gary Vogel:]

Thank you, operator. So we have no further remarks, so I'd like to thank everyone for joining us on our quarterly earnings call and wish you all great day. Thank you.

[Operator:]

Ladies and gentlemen, thanks for your participation in today's conference. This concludes the program. You may now disconnect. Everyone have a great day.