Star Bulk Carriers Corp. (SBLK) Q3 2013 Earnings Report, Transcript and Summary

Thank you for standing by, ladies and gentlemen. And welcome to the Star Bulk Conference Call on the Third Quarter 2013 Financial Results. We have with us Mr. Petros Pappas, Chairman; Mr. Spyros Capralos, President and Chief Executive Officer; and Mr. Simos Spyrou, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you the conference is being recorded today, Tuesday, November 26, 2013. And we now pass the floor to one of your speakers today, Mr. Petros Pappas. Please go ahead, sir.

Thank you, Operator. I’m Petros Pappas, the Chairman of the Board of Directors of Star Bulk Carriers, and I would like to welcome you to the Star Bulk Carriers’ third quarter and nine months 2013 financial results conference call. Along with me today to discuss our financial results are our President and CEO, Mr. Spyros Capralos; and our CFO, Mr. Simos Spyrou. Before we begin, I kindly ask you to take a moment to read the Safe Harbor statement on slide number two of our presentation. Before we begin the presentation and while you read our Safe Harbor statement, I would like to summarize our recent strategic initiatives as presented on slide number four. First of all, we have expanded and upgraded our fleet with both fuel-efficient newbuildings from top class yards, as well as opportunistic acquisitions of premium second-hand tonnage at what is essentially the bottom of the drybulk shipping cycle. We have adopted the flexible commercial strategy so as to maintain long-term spot market exposure, taking full advantage of the savings from our fuel-efficient newbuildings. We have diversified the composition of our fleet by weighing more on larger vessels that will benefit mostly from a broad market recovery due to economies of scale they offer on the freight per tonne basis and the increase in long-haul shipments. Furthermore, I have been the company’s Chairman and sponsor since its inception and remained committed to continue supporting the company in the future. I have been in the drybulk shipping industry for more than 35 years and have extensive experience operating fleets of privately-owned vessels and the public drybulk company during both the good and bad times in shipping. I personally have experience and successfully managed through more than four major historic cycles in the industry. Recently, as a [self confidence] in Star Bulk’s highly experienced management team, my family’s joint venture without the capital management has entrusted Star Bulk management with entire drybulk fleet. Finally, despite being in an ultra-growth mode, we remained committed to the cornerstone of our goals, that is, maximizing total returns to shareholders. As our fleet expands and the drybulk market recovers, we will evaluate favorably the potential return of capital to our shareholders, in a manner consistent with our overall business strategy, cash flows and liquidity position. I will now turn the floor to Spyros, who will guide you through an overview of the company, as well as our performance this quarter.

Thank you, Petros. Good morning to everyone. I am Spyros Capralos and I will take you through our performance for the third quarter and the nine months of 2013. Please let’s turn to slide number five of the presentation for the preview of the third quarter 2013 financial highlights in comparison to last years. In the three months ended September 30, 2013, net revenues amounted to $17 million representing a 2% increase versus the same period of 2012. Net revenues represent our total revenues adjusted for non-cash items less voyage expenses. The reason we refer to our net revenues is because this figure nets out any difference in the number of voyage charters we perform in each period and therefore is directly comparable to other periods. During this quarter, net revenues increased due to higher management fee income from third-party ship management services since we had on average 5.1 vessels under management compared to 1 during the third quarter of 2012. G&A expenses were $2.5 million in Q3 2013 versus $2 million in Q3 2012. However, this quarter’s number includes approximately 450,000 of stock-based compensation. If we exclude the non-cash stock-based compensation and other management fee income earned, net cash G&A expenses per vessel in Q3 2013 were $1,338 per day reduced by 6.6% versus the same quarter last year. Despite the fact that the headcount increased by more than 13% during this period to cater for the needs of our continuously expanding ship management business. We will touch upon this issue in more detail later in the presentation. Our third quarter 2013 operating income stood at $1.4 million, compared to $306.8 million of operating loss during the third quarter of 2012, the later including $303.2 million impairment loss associated with the mark-to-market of our vessels incurred in this period.…

Thank you, Spyros. Please turn now to Slide 18 for an overview of our balance sheet as of September 30, 2013. Our total cash balance stood at $84.66 million while other current assets were at $8.2 million. Our fixed assets amounted to $272 million, advances for newbuildings stood at $28.6 million while fair value of above market acquired time charter stood at $9.58 million and other non-current assets at $1.29 million. Summing up the above, total assets amounted to $404.4 million. Total debt stood at $194.4 million, other liabilities were $12.4 million and stockholders equity was at $197.5 million. The net debt was $109.8 million reduced by 43% versus December 31, 2012 respective figures. As you can see from the top right graph, our net debt-to-total capitalization ratio currently stands at 28% substantially lower than 2012. We remain committed in maintaining a healthy balance sheet while growing and expanding our fleet. In particular, since 2008 we have reduced our gross debt by $102 million while as you can see from the bottom right graph on the same time, the average number of owned vessels has increased from 10.8 vessels in 2008 to 13.4 vessels for the nine months of 2013. As a result, the net debt per vessel has dropped to $8 million from $23 million in 2008, a 65% decrease over this period. Turning now to Slide 19, to discuss our third quarter 2013 income statement, I would like to point out that our results includes non-cash items which are depicted in the middle column while the adjusted figures on the right excludes them. For the third quarter of 2013, non-cash adjusted revenues amounted to $19.3 million compared to $20 million in the same period last year. In particular, non-cash items include a $1.6 million related to the amortization…

Thank you, Simos. In conclusion, as you can see on Slide 28, we believe that investing the Star Bulk offers certain distinct benefits. First of all, through our flexible chartering strategy, our fleet is poised to benefit from the drybulk market recovery, while we have the financial power to capitalize on any distressed opportunities that might arise. Secondly, our investors get exposure to superior assets with a diverse quality of modern fleet, including nine tops spec eco newbuildings, orders ordered of 30 yards in Japan and China. Furthermore, we focused on what we do best, that is owning and operating drybulk vessels while we have diversified our asset base to higher earning vessel, such as Newcastlemaxes and Ultramaxes. Being experienced fleet managers, led by our Chairman, Mr. Petros Pappas. We have expanded our shareholder base to our credit institutions, such as Oaktree Capital, Monarch Alternative Capital, clearly a vote of confidence in our transparent and efficient operations. Lastly, we put a strong in-house ship managing capabilities, for which we take full advantage by managing third-party vessels as well. This activity generates risk less revenues, diversifying our consolidated cash flows. Overall, we believe Star Bulk has a good set of characteristic that plays us among the most promising companies in the drybulk sector. Closing, I would like to thank our shareholders for their ongoing support and loyalty. And we assure them, that we will continue our efforts to ensure the company's long-term viability and enhanced shareholder value. Without taking anymore of your time -- we have taken already a lot. I will now pass the floor over to our operator and in case you have any questions, all of us will be happy to answer them.

Thank you very much indeed, sir. (Operator Instructions) From Stifel, you have a question from the line of Ben Nolan. Please ask your question. Mr. Nolan, your line is open sir.

Hi. This is actually [Steven Fitz] filling in for Ben Nolan. Thank you for taking my question. It really relates to the newbuild. Given the slight increase in newbuilding prices, do you feel that in the future if you incrementally increase the size of your fleet, would you preferred to purchase newbuilds or acquire second hand vessels?

Thank you, Steven for your question. As you know, we are a flexible organization. We’re examining on a daily basis, our options ahead. I think we are very good in ordering those nine newbuildings at the beginning of the summer again, then in early September. And since then we’ve seen prices going up. I think more or less, we have completed the newbuilding program. However, in case we find something attractive, we would also consider it. We bought in the meantime those two second hand vessels which are almost new. They are top of the class and we think that these vessels will also permit us to have some nice cash flow earnings for the whole of 2014 and 2015, until the time that the newbuilding vessels will reach and will increase our fleet.

Okay. Thank you. That’s very helpful. And then my final question, it relates to the two acquisitions you recently made. When do you expect to receive bank financing from them?

That’s a very good question. We are talking to our banks. Currently, we have received few offers and we are examining them, I think we are going to be very happy to make the announcement when it comes. But, what I can tell you is that we have received some quite attractive offers and we’ll do the bank financing, we’ll announce it in the next few weeks.

Steven, we do not have any -- since we have plenty of cash right now, we will probably acquire the vessels with cash on hand in early December next week actually. And we will be concluding the financing most probably within January, so the debt financing will be received within January.

Okay. That does it for my questions. Thank you for your time.

Thank you very much. Now from Maxim Group, you have a question from Noah Parquette. Please ask your question, sir.

Thank you. Thanks for taking my question. Firstly, I just wanted to get your view on -- I mean, you’ve been obviously very active ordering newbuilds and there are Chinese yards. You have seen in the Korean and Japanese yards kind of access from the new drybulk side of the business, what do you see in terms of drybulk shipper capacity and slight availability going through 2016?

Yes, you’re right on your comment that the Koreans and the Japanese are trying to build high-value added vessels and therefore, they are not so much involved. Even though the Japanese, they have their own local ship owners and they are contracting vessels for their clientele. We know and that there aren’t many births left for 2015 or very limited birth left. And we have already heard that many of the yards are full even for the 2016. So, I don’t see much new ordering happening, but still I am sure that the yards, they do have some capacity left for newbuilding vessels. But overall, I think the biggest positive development in our business is that people do not order from second quality Chinese yards and they will not be flooding the market with low-quality vessels, which I think is also positive because also the banking side and the people financing them, they are not prepared to finance low-quality assets than they would.

Okay. And so you mentioned that you are essentially down with your newbuilding program here. Is that part of the -- are you happy with the size, or you are just not comfortable with going out past 2016? Would you be more inclined to look at second hand ships like those two Ultramaxes, just kind of talk us through that all?

Well, as you know, we are mainly focused on two classes of vessels. We are looking at the largest vessels, Capesizes and Newcastlemaxes, because as we explained during our presentation, we believe that the demand and the numbers are there for the future. And also we are looking at the largest Supramax vessels, the ones called Ultramaxes, the 61,000 to 64,000 because there also we have our existing fleet. We know the clients, the charters and we believe that these are assets that have shown less volatility in the difficult days and we think that will benefit the most. We are looking -- we have our ears open. We’re looking for distressed assets from banks. If they come in the market, we’re looking for second hand vessels that make sense and that will provide a cash flow. And we have done the biggest portion of our newbuilding program. We don’t want to go further way in 2016 or later, because I think the time element is quite important in these things. So, I think that unless we find something that we believe that is quite interesting on the newbuilding side, we’ll stick to the second hand vessels right now.

And how much like firepower, would you estimate you are comfortable with right now with the cash that you have on the balance sheet and you mentioned that NAV is little over 10, would you be more comfortable with addition stock as you are little closer to that on a fee level?

No, as we explained when we booked the two second hand Ultramaxes, we do not need additional equity right now. And from the figures that we have in our finances, we do not contemplate of having any needs in the next couple of years to issue more equity. Therefore, we are perfectly happy. We have a lot of cash sitting in our bank accounts and we are ready even to buy more vessels without needing to go to the equity markets again.

Thank you very much.

Thank you very much. (Operator Instructions) As there appear to be no further questions, gentlemen, I will pass the floor back to you for closing remarks.

Okay. I think that concludes our presentation with our third quarter results. We thank you all for joining us today in our conference call. Our 2013 fourth quarter results and actually our yearly results are scheduled for March 5, 2014. And until that time, we wish you all happy end of the year holidays and we hope, and we wish the drybulk market to improve more and next year will be a better year for all of us. Thank you all.

With many thanks to all our speakers today, that does conclude our conference. Thank you for participating. You may now all disconnect. Thank you, Mr. Spyros. Thank you, gentlemen.

Thank you very much.

All the very best. Bye-bye.