ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes set forth in Item 8. Financial Statements and Supplementary Data and the risk factors identified in Item 1A. Risk Factors of this Annual Report. For further discussion regarding our results of operations for the year ended December 31, 2022 as compared to the year ended December 31, 2021, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, as filed with the SEC on March 10, 2023.
General Overview
The Company is a U.S.-based, fully integrated, shipowner-operator, providing global transportation solutions to a diverse group of customers including miners, producers, traders, and end-users. Headquartered in Stamford, Connecticut, with offices in Singapore and Copenhagen, the Company focuses exclusively on the versatile midsize drybulk vessel segment and owns one of the largest fleets of Supramax/Ultramax vessels in the world. The Company performs all management services in-house (strategic, commercial, operational, technical and administrative) and employs an active management approach to fleet trading with the objective of optimizing revenue performance and maximizing earnings on a risk-managed basis. Typical cargoes we transport include both major bulk cargoes, such as iron ore, coal and grain and minor bulk cargoes such as fertilizer, steel products, petcoke and cement.
On December 11, 2023, the Company, Star Bulk and Merger Sub entered into the Proposed Merger, with the Company surviving the merger and becoming a wholly-owned subsidiary of Star Bulk. If the Proposed Merger is completed, each share of the Company’s common stock (other than shares held by the Company, Star Bulk, Merger Sub or any of their respective direct or indirect wholly-owned subsidiaries) will be converted into the right to receive the Merger Consideration, less any applicable withholding taxes. For further information regarding the Proposed Merger, refer to the section entitled “Proposed Merger” within Item 1. Business .
As of December 31, 2023, we owned and operated a modern fleet of 52 Supramax/Ultramax vessels, with an aggregate carrying capacity of 3.16 million deadweight ton (“dwt”) and an average age of 10 years.
In addition to its owned fleet, the Company charters-in third party vessels on both a short-term and long-term basis. As of December 31, 2023, the Company had three Ultramax vessels on a long-term charter-in basis, each with a remaining minimum lease term of less than one year.
Business Strategy and Outlook:
We believe our strong balance sheet allows us the flexibility to opportunistically make investments in the drybulk segment that will drive shareholder growth. In order to accomplish this, we intend to:
• Maintain a highly efficient and quality fleet in the drybulk segment;
• Maintain a revenue strategy that seeks to optimize TCE results in any rate environment;
• Maintain a cost structure that allows us to be competitive in all economic cycles without sacrificing safety and maintenance;
• Continue to grow our relationships with our charterers and vendors; and
• Continue to invest in our on-shore operations and development of processes.
Our financial performance is based on the following key elements of our business strategy:
(1) Concentration in one vessel category: Supramax/Ultramax drybulk vessels, which we believe offer certain size, operational and geographical advantages relative to other classes of drybulk vessels, such as Handysize, Panamax and Capesize vessels.
(2) An active owner-operator model where we seek to operate our own fleet and develop contractual relationships with cargo interests. These relationships and the related cargo contracts have the dual benefit of providing greater operational efficiencies and act as a balance to the Company’s naturally long position to the market. Notwithstanding the focus on short-term chartering, we consistently monitor the drybulk shipping market and, based on market conditions, will consider taking advantage of long-term time charters on our owned fleet at higher rates when appropriate.
(3) Maintain high quality vessels and improve standards of operation through enhanced standards and procedures, crew training and repair and maintenance procedures.
Market Overview
The international shipping industry is highly competitive and fragmented with no single owner accounting for more than 2.4% (1) of the on-the-water drybulk fleet, measured by vessel count, as of December 31, 2023. In addition, as of December 31, 2023, there are approximately 13,500 (1) drybulk vessels over 10,000 dwt which total 1,003 million dwt (1) . We compete with other owners of drybulk vessels, primarily in the Supramax/Ultramax segment and (to a lesser extent) the Handysize and Panamax segments. Many of our competitors are privately-held companies.
Competition in the shipping industry varies according to the nature of the contractual relationship as well as the specific commodity being shipped. Our business will fluctuate as a result of changes in the demand for seaborne transportation of drybulk commodities, the supply of drybulk shipping capacity and also the main patterns of trade in these drybulk commodities. Competition in virtually all bulk trades is intense and we compete for charters on the basis of price, vessel location, size, age, and condition of the vessel, as well as on our reputation as an owner and operator. Increasingly, major customers are demonstrating a preference for modern vessels based on concerns about the environmental and operational risks associated with older vessels. Consequently, owners of large modern fleets have gained a competitive advantage over owners of older fleets.
Our strategy is to focus on the Supramax/Ultramax asset class, defined as drybulk vessels that range in size from approximately 50,000 to 65,000 dwt. These vessels have the cargo loading and unloading flexibility offered by their on-board cranes, while the cargo carrying capacity approaches that of Panamax, which ranges in size between 65,000 and 100,000 dwt but which require onshore facilities to load and offload their cargoes. We believe that the cargo handling flexibility and cargo carrying capacity of the Supramax/Ultramax class makes it the preferred type of ship attractive to potential charterers. As of December 31, 2023, all of our owned vessels ranged in size between 55,000 and 65,000 dwt.
The supply of drybulk vessels depends primarily on the size of the orderbook and the scrapping of older or less-efficient vessels. The global drybulk fleet increased significantly from 2009 to 2013 as a result of the large number of newbuilding orders placed during the boom in the drybulk freight market from 2007 to 2008. From 2019 through 2023, annualized global drybulk fleet growth averaged approximately 3.4%. During 2023, fleet growth decreased slightly to 2.3% (1) from 3.1% (1) in 2022. In 2023, vessels totaling 35.3 million dwt (1) were delivered, an increase of 3.8 million dwt (1) from 2022. Scrapping in 2023 totaled 5.4 million dwt (1) , an increase of 1.1 million dwt (1) from 2022.
The typical trading life of a Supramax/Ultramax vessel is approximately 25 years. As of December 31, 2023, approximately 12% (1) of the world’s drybulk fleet (by vessel count) was 20 years or older.
Global fleet growth for 2024 is expected to continue at a below-average level of 2.3% (1) for the drybulk fleet and 3.5% (1) for Supramax/Ultramax vessels. The orderbook as of February 2024 stands at approximately 8.5% (1) of the total global drybulk fleet, with the orderbook for the Supramax/Ultramax segment at approximately 8.5% (1) of the on-the-water fleet, with both figures slightly higher than all-time lows experienced in 2020/2021, but still near the smallest orderbook in almost 30 years. The IMF is projecting GDP growth of +3.1% as it viewed economic pressure stemming from the COVID-19 pandemic, Russia’s invasion of Ukraine and high rates of inflation to have peaked during 2022. Potential downside risks to their projections include disruptions to global trade caused by attacks on commercial vessels in the Red Sea, deepening property sector issues in China, the withdrawal of fiscal support by central banks as well as elevated debt levels. As of February 2024, drybulk trade, on a ton-mile basis, is expected to grow by approximately 1.6% (1) in 2024, with modest levels of growth expected for grain and minor bulk, partially offset by slight decreases in demand for iron ore and coal.
(1)Source: Clarksons (February 2024)
The impact of the conflict between Russia and Ukraine
As a result of the conflict between Russia and Ukraine, the U.S., EU and United Kingdom, together with numerous other countries, have imposed significant sanctions on persons and entities associated with Russia and Belarus, as well as comprehensive sanctions on certain areas within the Donbas region of Ukraine, and such sanctions apply to entities owned or controlled by such designated persons or entities. This conflict has become a multi-year war and humanitarian crisis. While it is difficult to estimate the impact of this conflict and current or future sanctions on the Company’s business and financial position, these events and related sanctions could adversely impact the Company’s operations. In the near term, we have seen, and expect to continue to see, disruptions to trade in drybulk commodities in the Black Sea region, as well as in Russian exports in the Baltic and Far East regions due to these geopolitical events. In addition, the volatility of market prices for fuel increased during 2022 as a result of related supply disruptions from this , though this effect subsided in 2023. The potential for renewed in fuel prices could have an impact on the Company’s operations and liquidity.
The conflict between Russia and Ukraine may also impact our ability to source and retain crew from these countries. In response to this risk, we have: (i) substantially decreased the number of Russian crew members on board our vessels; (ii) established relationships with crew managers outside of Ukraine, including in Asia; (iii) increased crew sourcing from the Philippines in order to diversify crew nationality exposure; and (iv) may further expand our relationships with crew managers outside of Ukraine. We have incurred and expect to continue to incur increased operating expenses related to Ukrainian crew procurement, travel costs to repatriate Ukrainian crew members on board our vessels and to expatriate crew members sourced from other regions.
For more information regarding the risks relating to the conflict between Russia and Ukraine, including economic sanctions levied as a result of it, see Item 1A . Risk Factors . The conflict between Russia and Ukraine may impact our ability to retain and source crew, and in turn, could materially and adversely affect our operating results.
The impact of recent developments in the Middle East
From October 2023 into 2024, the war between Israel and Hamas in Gaza has created political and potential economic uncertainty in the Middle East. In addition, a number of commercial vessels, including one of our owned vessels, have been attacked in the Red Sea and Gulf of Aden. The attack that we experienced resulted in limited vessel damage and with no loss of life or personal injury to our crew members. In response to these events and conditions, a number of companies in international shipping industries, including our own, have substantially reduced or temporarily ceased all transit through this region. As of the date of this Annual Report, we have ceased all transit through this region. To date, the war between Israel and Hamas and increased risks in travelling in the Red Sea and Gulf of Aden have not had a direct material impact on the Company’s business, financial condition or results of operations. However, we will continue to monitor the direct and indirect impacts of these circumstances on our business and financial results.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP” or “GAAP”). The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities, revenues and expenses and related disclosure of contingent assets and liabilities at the date of our financial statements. Actual results may differ from these estimates under different assumptions and conditions.
Critical accounting policies are those that reflect significant judgments of uncertainties and potentially result in materially different results under different assumptions and conditions. We have described below what we believe are our most critical accounting policies, because they generally involve a comparatively higher degree of judgment in their application. For a description of all our accounting policies, see Note 2. Significant Accounting Policies to our consolidated financial statements included herein.
Revenue Recognition
Revenues are generated from time charters and voyage charters. Revenues from time charter contracts, which are accounted for as operating leases, are recognized on a straight-line basis over the contractual term of the related time charter agreement. Voyage charter contracts generally consist of a single performance obligation of transportation of cargo within a specified period of time. This performance obligation is satisfied over time as the related voyage progresses and the related revenue is recognized on a straight-line basis over the estimated relative transit time (in voyage days) from the commencement of the loading of cargo to the completion of discharge, provided an agreed non-cancellable charter between the Company and the charterer is in existence, the charter rate is fixed and determinable and collectability is reasonably assured. Costs directly related to a voyage charter contract that are incurred prior to commencement of loading cargo, primarily bunkers, are recognized as an asset and expensed on a straight-line basis as the related performance obligation is satisfied.
Revenue is based on contracted charter parties, including spot-market related time charters for which rates fluctuate based on changes in the spot market. However, there is always the possibility of dispute over terms and payment of hires and freights. In particular, disagreements may arise as to the responsibility for third party costs incurred by the customer and revenue due to us as a result. Additionally, there are certain performance parameters included in contracted charter parties, which if not met, can result in customer claims.
The Company assesses collectability by reviewing accounts receivable on a collective basis where similar characteristics exist and on an individual basis for accounts receivable from specific customers with known disputes or collectability issues. In estimating the amount of the allowance for credit losses, the Company considers historical collectability based on past due status, the creditworthiness of customers based on current credit evaluations, customer-specific information, current market conditions and reasonable and supportable forecasts of future economic conditions to inform adjustments to historical loss data. For the years ended December 31, 2023, 2022 and 2021, our assessment considered business and market disruptions caused by the conflicts between Russia and Ukraine and Israel and Hamas, the COVID-19 pandemic and estimates of expected emerging credit and collectability trends. The continued volatility in market conditions and evolving shifts in credit trends are inherently difficult to predict causing variability and volatility that may have a material impact on our allowance for expected credit losses in future periods.
Vessel Lives and Impairment
The Company estimates the useful life of the Company’s vessels to be 25 years from the date of initial delivery from the shipyard to the original owner. In addition, the Company estimates the scrap rate to be $400 per lwt, to compute each vessel’s residual value, which is based on the 15-year average scrap value of steel.
The carrying values of the Company’s vessels may not represent their fair market value at any point in time since the market prices of secondhand vessels tend to fluctuate with changes in freight rates and the cost of new buildings, among other factors. The drybulk shipping market has been cyclical with high volatility in freight rates, which is driven by the supply of vessel capacity and demand for commodities carried internationally by sea. We evaluate the carrying amounts of our owned vessels as well as the periods over which these long-lived assets are depreciated to determine whether events or transactions have occurred that may indicate that the carrying values of such vessels may not be recoverable or that the remaining useful life of a vessel may need to be prospectively modified. In evaluating the carrying values and remaining useful lives of long-lived assets, we consider indicators of potential impairment, which include a comparison of basic charter-free market values (as obtained from vessel-specific broker quotes) to carrying values, recent observable vessel sales, business plans and overall market conditions.
If indicators of potential impairment are present, we perform an analysis of the undiscounted projected net operating cash flows for each vessel and compare it to the vessel’s carrying value. This assessment is made at the individual vessel level since we can separately identify cash flow information for each vessel. In developing estimates of future cash flows, the Company makes certain assumptions about future freight rates, vessel operating expenses, and the estimated remaining useful lives of the vessels. These assumptions are based on historical trends as well as future expectations. Annually, the Company reviews all assumptions used in the calculation of undiscounted projected net operating cash flows.
The undiscounted projected net operating cash flows are estimated using future revenues from existing charters for fixed fleet days, projected FFA rates through 2026 for unfixed days and an estimated daily time charter rate based on a fifteen-year historical average of the BSI over the estimated remaining useful life of the vessel, assumed to be 25 years from the original delivery of the vessel from the shipyard to its original owner, with FFA rates and the historical BSI average further adjusted for the dwt of each vessel as compared to the index’s representative vessel, and reduced by commissions, estimated outflows for vessel maintenance and operating expenses (including drydocking and special survey expenditures) and capital expenditures.
Future freight rates is the most significant and most volatile input in the Company’s cash flow analysis. We utilize historical averages for periods not covered by contractually fixed charters or available FFA pricing due to the highly cyclical nature of the drybulk shipping industry. The age of vessels in our owned fleet ranges from three to fifteen years and utilizing long-term average spot freight rates incorporates multiple shipping cycles and aligns to our strategy of operating our vessels over a long time period.
The Company evaluated whether any potential impairment indicators existed as of December 31, 2023. Based on this evaluation, which included comparisons of third-party valuation information to vessel carrying values, the Company concluded that there were potential impairment indicators for twenty-two vessels in our owned fleet. For each of these vessels, the Company performed an undiscounted projected net operating cash flow analysis and concluded that the estimated fair value of each vessel exceeded its carrying value and no impairment charges were recorded.
The table set forth below indicates the carrying value of each of our owned vessels as of December 31, 2023 and 2022 (and excludes the carrying value of vessels sold during both 2023 and 2022). As of December 31, 2023 and 2022, the estimated basic charter-free market value of these vessels exceeded their aggregate carrying values by approximately $183.7 million and $195.4 million, respectively.
Dwt
(in thousands)
Carrying Value as of
Vessel
Year Built
December 31, 2023
December 31, 2022
Antwerp Eagle
$19.6 million
$20.5 million
Bittern
$14.5 million*
$15.4 million*
Canary
$14.4 million*
$15.3 million*
Cape Town Eagle
$18.5 million
$19.2 million
Copenhagen Eagle
$18.0 million
$18.5 million
Crane
$15.4 million*
$16.4 million*
Crested Eagle
$16.1 million*
$17.3 million*
Crowned Eagle
$15.5 million*
$16.6 million*
Dublin Eagle
$18.1 million
$18.4 million
Egret Bulker
$15.2 million*
$16.1 million*
Fairfield Eagle
$15.9 million
$16.1 million
Gannet Bulker
$15.3 million*
$16.3 million*
Gibraltar Eagle
$23.4 million
Golden Eagle
$17.3 million*
$18.5 million*
Grebe Bulker
$15.5 million*
$16.4 million*
Greenwich Eagle
$16.0 million
$15.9 million
Groton Eagle
$15.8 million
$16.0 million
Halifax Eagle
$29.5 million
Hamburg Eagle
$19.0 million
$19.9 million
Helsinki Eagle
$15.0 million
$15.6 million
Hong Kong Eagle
$19.2 million
$20.0 million
Ibis Bulker
$15.8 million*
$16.8 million*
Imperial Eagle
$17.2 million*
$18.4 million*
Jay
$16.1 million*
$17.1 million*
Kingfisher
$15.5 million*
$16.2 million*
Madison Eagle
$16.9 million
$17.6 million
Martin
$16.5 million*
$17.5 million*
Mystic Eagle
$16.1 million
$16.9 million
New London Eagle
$19.8 million
$20.7 million
Nighthawk
$16.5 million*
$17.5 million*
Oriole
$16.3 million*
$17.2 million
Oslo Eagle
$14.5 million
$15.0 million
Owl
$16.4 million*
$17.3 million
Petrel Bulker
$16.3 million*
$17.2 million
Puffin Bulker
$16.3 million*
$17.3 million
Roadrunner Bulker
$16.6 million*
$17.5 million*
Rotterdam Eagle
$17.1 million
$17.8 million
Rowayton Eagle
$15.7 million
$16.0 million
Sandpiper Bulker
$16.7 million*
$17.6 million*
Santos Eagle
$17.7 million
$18.5 million
Shanghai Eagle
$19.2 million
$20.0 million
Singapore Eagle
$16.9 million
$17.5 million
Southport Eagle
$15.9 million
$16.0 million
Stamford Eagle
$14.5 million
$15.1 million
Stellar Eagle
$16.4 million*
$17.6 million*
Stockholm Eagle
$16.2 million
$16.9 million
Stonington Eagle
$15.4 million
$16.2 million
Sydney Eagle
$17.7 million
$18.5 million
Tokyo Eagle
$26.8 million
$27.5 million*
Valencia Eagle
$18.5 million
$19.3 million
Vancouver Eagle
$29.5 million
Westport Eagle
$15.9 million
$16.6 million
Total
$904.3 million
$859.9 million
* Indicates a vessel for which the estimated basic charter-free market value was less than its carrying value as of the specified date.
Deferred Drydock Cost
There are two methods that are used by the shipping industry to account for drydockings: (a) the deferral method where drydock costs are deferred when incurred and amortized over the period to the next scheduled drydock; and (b) expensing drydocking costs as incurred. We apply the deferral method for drydock costs. Under the deferral method, drydock costs are deferred and amortized on a straight-line basis until the next drydock, which we estimate to be a period of thirty to sixty months, depending upon the age of the vessel. We believe the deferral method better matches costs with revenue than expensing the costs as incurred. We use judgment when estimating the period between drydocks, which can result in prospective adjustments to amortization expense. We expect that our vessels require drydocking approximately every 60 months for vessels less than 15 years old and every 30 months for vessels older than 15 years. When a vessel is disposed of, unamortized drydock costs are written off to the gain or loss upon disposal. When a vessel enters drydock, unamortized drydock costs for that vessel are expensed to Depreciation and amortization in the Consolidated Statements of Operations.
Deferred drydock costs generally include direct costs incurred as part of drydocking in order to satisfy regulatory requirements. Costs incurred that add economic life to a vessel, increase a vessel’s earnings capacity or improve a vessel’s efficiency are accounted for as vessel improvements and are capitalized into the cost basis of the vessel, whether incurred as part of drydocking or not. Expenditures for normal maintenance and repairs, whether incurred as part of the drydocking or not, are expensed as incurred.
Vessel acquisition
Where we identify any intangible assets or liabilities associated with the acquisition of a vessel, we record all identified tangible and intangible assets or liabilities at fair value. Fair value is determined by reference to market data and the amount of expected future cash flows. We value any asset or liability arising from the market value of the time charters assumed when an acquired vessel is delivered to us.
Where we have assumed an existing charter obligation or enter into a time charter with the existing charterer in connection with the purchase of a vessel at charter rates that are less than prevailing period freight rates, we record a liability in fair value below contract value of time charters acquired based on the difference between the assumed charter rate and the prevailing period freight rate for an equivalent vessel. Conversely, where we assume an existing charter obligation or enter into a time charter with the existing charterer in connection with the purchase of a vessel at charter rates that are above the prevailing period freight rates, we record an asset in fair value above contract value of time charters acquired, based on the difference between the prevailing period freight rate and the contracted charter rate for an equivalent vessel. This determination is made at the time the vessel is delivered to us, and such assets and liabilities are amortized to revenue over the remaining period of the charter. The determination of the fair value of acquired assets and assumed liabilities requires us to make significant assumptions and estimates of many variables including spot freight rates, expected future freight rates, future vessel operation expenses, the level of utilization of our vessels and our weighted average cost of capital. The use of different assumptions could result in a material change in the fair value of these items, which could have a material impact on our financial position and results of operations. In the event that freight rates relating to the acquired vessels are lower than the contracted freight rates at the time of their respective deliveries to us, our net earnings for the remainder of the terms of the charters may be affected although our cash flows will not be affected.
Results of Operations for the Years Ended December 31, 2023 and 2022
This section of this Form 10-K generally discusses 2023 and 2022 results and year-to-year comparisons between 2023 and 2022. A discussion of 2022 results of operations compared to 2021 is not included in this Form 10-K, but may be found in “Part II, Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 10, 2023.
Net Income
For the year ended December 31, 2023, the Company reported net income of $22.7 million, or $2.05 and $1.96 per basic and diluted share, respectively. For the year ended December 31, 2022, the Company reported net income of $248.0 million, or $19.09 and $15.57 per basic and diluted share, respectively. The net income for the years ended December 31, 2023 and 2022 are the result of the items described below.
Factors Affecting our Results of Operations
We consider the following fleet utilization measures important to understanding and analyzing our results of operations:
For the Years Ended
December 31, 2023
December 31, 2022
Ownership days
Owned available days
• Ownership days: We define ownership days as the aggregate number of days in a period for which each vessel in our fleet has been owned by us. Ownership days is a measure of the size of our fleet over a period and affects the amounts of revenues we earn and expenses we incur during a period.
• Owned available days: We define owned available days as the number of ownership days less the aggregate number of days that our owned vessels are off-hire due to vessel familiarization upon acquisition, repairs, vessel improvements, special and intermediate surveys and other reasons which prevent a vessel from performing under a charter party in a period. The shipping industry uses owned available days to measure the number of days in a period for which vessels should be capable of generating revenues.
Time Charter Equivalent (TCE) (Non-GAAP Measure)
Shipping revenues are highly sensitive to patterns of supply and demand for vessels of the size and design configurations owned and operated by a company and the trades in which those vessels operate. In the drybulk sector of the shipping industry, rates for the transportation of drybulk cargoes such as ores, grains, steel, fertilizers, and similar commodities, are determined by market forces such as the supply and demand for such commodities, the distance that cargoes must be transported, and the number of vessels available or expected to be available at the time such cargoes need to be transported. The number of vessels is affected by newbuilding deliveries and by the removal of existing vessels from service, principally due to scrapping.
The mix of charters between voyage charters and time charters also affects revenues. Because the mix between voyage charters and time charters significantly affects shipping revenues and voyage expenses, vessel revenues are benchmarked based on time charter equivalent (“TCE”), which is a non-GAAP measure.
TCE is commonly used in the shipping industry primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charter hire rates for vessels on voyage charters are generally not expressed in per-day amounts while charter hire rates for vessels on time charters generally are expressed in such amounts. The Company defines TCE as revenues, net less voyage expenses and charter hire expenses, adjusted for realized gains/(losses) on FFAs and bunker swaps, the subtotal of which is divided by the number of owned available days. TCE provides additional meaningful information in conjunction with Revenues, net, the most directly comparable GAAP measure, because it assists Company management in making decisions regarding the deployment and use of its vessels and in evaluating their performance. The Company’s TCE should not be considered an alternative to net income/(loss), operating income/(loss), cash flows provided by/(used in) operating activities or any other measure of financial performance or liquidity presented in accordance with U.S. GAAP. The Company’s calculation of TCE may not be comparable to those reported by other companies.
The following table presents a reconciliation of TCE, a non-GAAP measure, from Revenues, net as recorded in the accompanying Consolidated Statements of Operations for the years ended December 31, 2023 and 2022.
Year Ended
(in thousands, except Owned available days and TCE)
December 31, 2023
December 31, 2022
Revenues, net
Less:
Voyage expenses
Charter hire expenses
Realized gain on FFAs and bunker swaps, net
Owned available days
TCE
Our economic decisions are primarily based on anticipated net charter hire rates and we evaluate financial performance based on net charter rates achieved. Our revenues are driven primarily by the number of vessels in our fleet, the number of days during which our vessels operate and the net charter hire that our vessels earn under charters, which, in turn, are affected by a number of factors, including:
• the duration of our charters;
• our decisions relating to vessel acquisitions and disposals;
• the amount of time that we spend positioning our vessels;
• the amount of time that our vessels spend in drydock undergoing repairs;
• maintenance and upgrade work;
• the age, condition and specifications of our vessels;
• levels of supply and demand in the drybulk shipping industry; and
• other factors affecting spot freight rates for drybulk carriers.
Revenues, net
Revenues, net for the year ended December 31, 2023 were $393.8 million, compared to $719.8 million for the year ended December 31, 2022. Revenues, net decreased $326.0 million primarily due to lower rates on both time and voyage charters as well as a decrease in chartered-in days, each driven by a decline in the drybulk market.
Voyage expenses
To the extent that we employ our vessels on voyage charters, we incur expenses that include but are not limited to bunkers, port charges, canal tolls and cargo handling operations, as these expenses are borne by the vessel owner on voyage charters. As is common in the shipping industry, we pay commissions ranging from 1.25% to 5.00% of the total daily charter hire rate of each charter to unaffiliated ship brokers and in-house brokers associated with the charterers, depending on the number of brokers involved with arranging the charter. We record such broker commissions as voyage expenses.
Voyage expenses for the year ended December 31, 2023 were $106.7 million, compared to $163.4 million for the year ended December 31, 2022. Voyage expenses decreased $56.7 million primarily due to a $37.0 million reduction in bunker consumption expenses primarily due to decreases in both voyage charters and bunker prices, a $15.5 million reduction in port expenses due to a decrease in voyage charters and lower fuel surcharges and a $4.1 million decrease in broker commissions due to lower freight rates driven by a decline in the drybulk market.
Vessel operating expenses
Vessel operating expenses include crew wages and related costs, the cost of insurance, expenses relating to repairs and maintenance, the cost of spares and consumable stores and related inventory, tonnage taxes, pre-operating costs associated with the delivery of acquired vessels, including providing the newly acquired vessels with initial provisions and stores, and other miscellaneous expenses.
Vessel operating expenses for the year ended December 31, 2023 were $120.5 million, compared to $123.9 million for the year ended December 31, 2022. Vessel operating expenses decreased $3.5 million due to a $2.0 million decrease in the cost of stores and spares, a $1.9 million decrease in repair costs driven by lower discretionary spending on upgrades, including on newly acquired ships and fewer unscheduled repairs, a $1.8 million decrease in lube costs and a $0.6 million decrease in insurance costs, partially offset by a $3.5 million increase in crewing costs driven by higher compensation and increased crew changes as a result of a change in crew managers.
Charter hire expenses
Charter hire expenses for the year ended December 31, 2023 were $36.5 million, compared to $81.1 million for the year ended December 31, 2022. Charter hire expenses decreased $44.6 million primarily due to a decrease in chartered-in days (2,708 for the year ended December 31, 2023 as compared to 4,081 for the year ended December 31, 2022) as well as a decrease in charter hire rates as a result of a decline in the drybulk market.
Depreciation and amortization
We depreciate the cost of our vessels on a straight-line basis over the expected useful life of each vessel. Depreciation is based on the cost of the vessel less its estimated residual value. We estimate the useful life of our vessels to be 25 years from the date of initial delivery from the shipyard to the original owner. We estimate the scrap rate to be $400/lwt to compute each vessel’s residual value.
We amortize drydocking costs on a straight-line basis over the period through the date the next drydocking is required to become due, generally 30 months for vessels that are 15 years old or more and 60 months for vessels that are less than 15 years old.
Depreciation and amortization for the year ended December 31, 2023 was $60.5 million, compared to $61.2 million for the year ended December 31, 2022. Depreciation and amortization decreased $0.6 million primarily due to a $4.0 million decrease in depreciation due to a change in our estimated vessel scrap value from $300 per lwt to $400 per lwt, effective January 1, 2023, partially offset by a $2.6 million increase in depreciation from the net impact of vessels acquired and sold during the respective periods and a $0.8 million increase in deferred drydocking cost amortization due to higher costs on drydockings completed in 2023.
General and administrative expenses
General and administrative expenses include onshore vessel administration related expenses, such as legal and other professional fees, administrative expenses including payroll and other expenses relating to our executive officers and office staff, office rent and expenses, directors fees, and directors and officers insurance. General and administrative expenses also include stock-based compensation expenses.
General and administrative expenses for the year ended December 31, 2023 were $43.6 million, compared to $41.2 million for the year ended December 31, 2022. General and administrative expenses increased $2.4 million primarily due to a $1.4 million increase in stock-based compensation expense and a $0.7 million increase in employee-related costs.
Impairment of operating lease right-of-use assets
Impairment of operating lease right-of-use assets for the year ended December 31, 2023 was $0.7 million, compared to $2.2 million for the year ended December 31, 2022. Impairment losses were driven by declines in the freight rate environment as compared to certain operating leases with relatively higher fixed hire rates.
Other operating expense
Other operating expense for the year ended December 31, 2023 was $7.3 million, compared to $3.8 million for the year ended December 31, 2022. Other operating expense for the year ended December 31, 2023 was comprised of $6.3 million of costs associated with the Proposed Merger and $1.0 million of costs related to a 2021 U.S. government investigation into an allegation that one of our vessels may have improperly disposed of ballast water that entered the engine room bilges during a repair. Other operating expense for the year ended December 31, 2022 was comprised of $2.4 million of costs associated with a corporate transaction that did not materialize and $1.4 million of costs related to a 2021 U.S. government investigation into an allegation that one of our vessels may have improperly disposed of ballast water that entered the engine room bilges during a repair.
Gain on sale of vessels
For the year ended December 31, 2023, the Company recorded a gain on the sale of the vessels Jaeger, Montauk Eagle, Newport Eagle and Sankaty Eagle of $19.7 million. For the year ended December 31, 2022, the Company recorded a gain on the sale of the vessel Cardinal of $9.3 million.
Interest expense
Interest expense for the year ended December 31, 2023 was $23.6 million, compared to $17.0 million for the year ended December 31, 2022. Interest expense increased $6.6 million primarily due to the upsize of, and increased amounts borrowed under, the Global Ultraco Debt Facility, along with the effect of higher interest rates.
The Company entered into certain interest rate swap agreements in October 2021 and August 2023 to fix the interest rate exposure on then-outstanding term loans under the Global Ultraco Debt Facility. As of December 31, 2023, the interest rate risk on the entire $263.0 million of aggregate principal amount of term loans outstanding under the Global Ultraco Debt Facility is hedged through these swaps, which carry and weighted-average fixed rate of 174 basis points. As of December 31, 2023, amounts outstanding under the Revolving Facility are not hedged.
Interest income
Interest income for the year ended December 31, 2023 was $6.7 million, compared to $2.9 million for the year ended December 31, 2022. Interest income increased $3.8 million primarily due to the impact of higher interest rates on the Company’s cash balances.
Realized and unrealized (gain)/loss on derivative instruments, net
For the year ended December 31, 2023, the Company recorded a net realized and unrealized gain on derivatives of $2.0 million, compared to a net realized and unrealized gain on derivatives of $13.9 million for the year ended December 31, 2022. The $11.9 million decrease was due to market movements as well as lower FFA and bunker swap activity.
Loss on debt extinguishment
For the year ended December 31, 2022, the Company recorded a loss on debt extinguishment of $4.2 million as a result of the repurchase of $10.0 million in aggregate principal amount of Convertible Bond Debt for $14.2 million in cash.
Effects of Inflation
The Company believes that its business typically benefits during periods of elevated inflation and positive demand growth, as higher charter rates and net revenues more than offset increases in costs relating to vessel operating expenses, drydocking and general and administrative expenses.
Liquidity and Capital Resources
Our principal sources of funds include operating cash flows and borrowings under long-term debt and revolving credit facilities. Our principal uses of funds include: (i) capital expenditures to establish and grow our fleet, maintain the quality and efficiency of our vessels and comply with international shipping standards and environmental laws and regulations, (ii) funding working capital requirements and (iii) making principal and interest payments on our debt.
Our ability to generate sufficient cash depends on many factors, some of which are outside of our control. For additional discussion regarding risks that may negatively impact our cash flows, see Item 1A. Risk Factors .
We believe that our current financial resources, together with the undrawn portion of the revolving facility available under the Global Ultraco Debt Facility and cash generated from operations, will be sufficient to meet our ongoing business needs and other obligations over the next twelve months and for the foreseeable future thereafter.
From time to time, the Company may, subject to market conditions and other factors and to the extent permitted by law, opportunistically repurchase the Convertible Bond Debt in the open market or through privately negotiated transactions. The Company may not otherwise redeem the Convertible Bond Debt prior to the Maturity Date.
Summarized Balance Sheet Information
The following table presents summarized balance sheet information as of December 31, 2023 and 2022:
December 31, 2023
December 31, 2022
Cash and cash equivalents
Current assets (excluding cash and cash equivalents)
Current liabilities (excluding current portion of long-term debt)
Current portion of long-term debt
Long-term debt
Cash and cash equivalents was $118.6 million as of December 31, 2023, compared to $187.2 million as of December 31, 2022. The $68.5 million decrease was primarily driven by $222.9 million paid to repurchase Common Stock and $82.4 million paid to acquire three vessels and other vessel improvements, partially offset by $123.4 million of proceeds, net of debt issuance costs from the Revolving Facility, $73.1 million of proceeds, net of debt issuance costs, under the Term Facility and $56.6 million of proceeds from the sale of four vessels.
Current assets (excluding cash and cash equivalents) was $70.9 million as of December 31, 2023, compared to $74.9 million as of December 31, 2022. The $3.9 million decrease was driven by (i) a $3.1 million decrease in inventories due to lower quantities of bunkers owned and (ii) a $1.4 million decrease in accounts receivable as a result of a decline in the drybulk market.
Current liabilities (excluding current portion of long-term debt) was $59.2 million as of December 31, 2023, compared to $79.2 million as of December 31, 2022. The $20.0 million decrease was driven by (i) a $15.9 million decrease in current operating lease liabilities primarily due to lease payments made during 2023 and (ii) a $5.4 million decrease in unearned charter hire revenue as a result of a decline in the drybulk market.
Current portion of long-term debt was $153.7 million as of December 31, 2023, which was comprised of $103.9 million of Convertible Bond Debt and $49.8 million due under the Term Facility, compared to $49.8 million as of December 31, 2022, which was comprised of amounts due under the Term Facility.
Long-term debt was $330.1 million as of December 31, 2023, compared to $284.7 million as of December 31, 2022. The $45.4 million increase was primarily driven by proceeds, net of debt issuance costs, of $73.1 million under the Term Facility and $123.4 million under the Revolving Facility, partially offset by the reclassification of $103.9 million of Convertible Bond Debt to current liabilities and $49.8 million in repayments on the Term Facility.
Financing
A summary of the Company’s debt as of December 31, 2023 and December 31, 2022 is as follows:
December 31, 2023
December 31, 2022
Principal Amount Outstanding
Carrying Value
Principal Amount Outstanding
Carrying Value
Convertible Bond Debt (1)
Global Ultraco Debt Facility - Term Facility (2)
Global Ultraco Debt Facility - Revolving Facility (3)
(1) $104.1 million of principal amount outstanding of Convertible Bond Debt is classified as current as of December 31, 2023.
(2) $49.8 million of principal amount outstanding under the Global Ultraco Debt Facility is classified as current as of December 31, 2023 and December 31, 2022.
(3) As of December 31, 2023 and December 31, 2022, the undrawn revolving facility under the Global Ultraco Debt Facility was $49.1 million and $100.0 million, respectively.
On May 11, 2023, Eagle Bulk Ultraco LLC (“Eagle Ultraco”), a wholly-owned subsidiary of the Company, along with certain of its wholly-owned, vessel-owning subsidiaries as guarantors, amended and restated its Credit Agreement originally dated October 1, 2021 (the “Original Global Ultraco Debt Facility”) pursuant to an Amended and Restated Credit Agreement dated as of May 11, 2023 (the “Global Ultraco Refinancing” and, as amended, the “Global Ultraco Debt Facility”) with the lenders party thereto and Crédit Agricole Corporate and Investment Bank (“Credit Agricole”) as security trustee, structurer, sustainability coordinator and facility agent (collectively, the “Lenders”). The Company paid fees of $3.5 million to the Lenders in connection with the Global Ultraco Refinancing.
The Global Ultraco Refinancing provided for additional loan capacity of up to $175.0 million, thereby increasing the aggregate principal amount of senior secured credit facilities under the Global Ultraco Debt Facility to $485.3 million (from $310.3 million under the Original Global Ultraco Debt Facility). Additional amounts provided under the Global Ultraco Refinancing included: (i) an additional term loan of up to $75.0 million, thereby increasing the aggregate principal amount of term loans under the Global Ultraco Debt Facility to $300.3 million (the “Term Facility”) and (ii) an additional revolving credit facility in an aggregate principal amount of $100.0 million, thereby increasing the aggregate principal amount of revolving credit facilities available under the Global Ultraco Debt Facility to $185.0 million which shall be reduced beginning on September 15, 2023 and every three months thereafter, by 21 consecutive reductions of $5.445 million (the “Revolving Facility”). Proceeds from the Global Ultraco Refinancing are to be used for general corporate and working capital purposes, including, but not limited to vessel purchases, capital improvements, stock buybacks or equity repurchases, retirement of debt and other strategic initiatives.
During the year ended December 31, 2023, the Company borrowed $75.0 million under the Term Facility and $125.0 million under the Revolving Facility and repaid $49.8 million under the Term Facility.
Refer to Note 7. Debt to the consolidated financial statements included elsewhere herein for additional information on the Global Ultraco Refinancing and the Company’s other long-term debt.
Selected Cash Flow Information
The following table presents summarized cash flow information for the years ended December 31, 2023 and 2022:
Year Ended
December 31, 2023
December 31, 2022
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Net (decrease)/increase in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of year
Cash, cash equivalents and restricted cash at end of year
Net cash provided by operating activities for the year ended December 31, 2023 was $55.9 million, compared to $298.3 million for the year ended December 31, 2022. The decrease in net cash provided by operating activities was primarily driven by a $225.3 million decrease in net income as a result of a decline in the drybulk market.
Net cash used in investing activities for the year ended December 31, 2023 was $29.1 million, compared to $23.7 million for the year ended December 31, 2022. During the year ended December 31, 2023, the Company paid $82.4 million to purchase three vessels and other vessel improvements and paid $2.6 million for the purchase of BWTS. These uses of cash were partially offset by $56.6 million in proceeds from the sale of four vessels. During the year ended December 31, 2022, the Company paid $27.7 million to purchase one vessel and other vessel improvements, paid $7.3 million for the purchase of BWTS and paid $3.6 million as an advance on the purchase of one vessel. These uses of cash were partially offset by $14.9 million in proceeds from the sale of one vessel.
Net cash used in financing activities for the year ended December 31, 2023 was $95.4 million, compared to $171.1 million for the year ended December 31, 2022. During the year ended December 31, 2023, the Company (i) paid $222.9 million to repurchase Common Stock, inclusive of fees, (ii) repaid $49.8 million of term loan under the Global Ultraco Debt Facility, (iii) paid $16.8 million in dividends and (iv) paid $2.3 million for taxes related to net share settlement of equity awards. These uses of cash were partially offset by $123.4 million of proceeds, net of debt issuance costs, from the Revolving Facility under the Global Ultraco Debt Facility and $73.1 million of proceeds, net of debt issuance costs, from the Term Facility under the Global Ultraco Debt Facility. During the year ended December 31, 2022, the Company (i) paid $105.0 million in dividends, (ii) repaid $49.8 million of term loan under the Global Ultraco Debt Facility, (iii) paid $14.2 million to repurchase $10.0 million in aggregate principal amount of Convertible Bond Debt and (iv) paid $2.4 million for taxes related to net share settlement of equity awards.
Dividends
During 2021, the Company adopted a dividend policy which targets a minimum dividend of 30% of its net income, but not less than $0.10 per share, subject to approval from the Board.
A summary of dividends declared during the years ended December 31, 2023, 2022 and 2021 and through the date of this Annual Report on Form 10-K is as follows:
Record Date
Payment Date
Amount (per Common Share)
March 13, 2024
March 21, 2024
November 14, 2023
November 22, 2023
August 16, 2023
August 24, 2023
May 17, 2023
May 25, 2023
March 15, 2023
March 23, 2023
November 15, 2022
November 23, 2022
August 16, 2022
August 26, 2022
May 16, 2022
May 25, 2022
March 15, 2022
March 25, 2022
November 15, 2021
November 24, 2021
We expect to continue paying cash dividends on a quarterly basis; however, in the future, the declaration and payment of dividends, if any, will always be subject to the discretion of the Board, restrictions contained in the Company’s debt facilities and the requirements of Marshall Islands law. The timing and amount of any dividends declared will depend on, among other things, the Company’s earnings, financial condition and cash requirements and availability, the ability to obtain debt and equity financing on acceptable terms as contemplated by the Company’s growth strategy, the terms of its outstanding indebtedness and the ability of the Company’s subsidiaries to distribute funds to it. Additionally, the terms of the Merger Agreement limit the ability of the Company to declare or pay dividends prior to the completion of the Proposed Merger, other than the Company’s regular quarterly dividend with respect to our common stock (with declaration, record and payment dates and amounts consistent with past practice and in accordance with our dividend policy).
Contractual Obligations
Information about the Company's contractual obligations can be found within Note 4. Vessels and Vessel Improvements, Note 7. Debt, and Note 12. Leases, in addition to the information presented below. We believe that funds from future operating cash flows, cash on hand and amounts available to us under the Revolving Facility will be sufficient for future operations, commitments, capital acquisitions and other strategic transactions for the next 12 months and for the foreseeable future thereafter.
Capital Expenditures
Our capital expenditures primarily relate to the purchase of vessels and capital improvements to our vessels, which are expected to enhance their revenue earning capabilities, efficiency and/or safety and to comply with relevant regulations.
During the year ended December 31, 2023, the Company acquired the following vessels:
Vessel
Type
Scrubber-Fitted
Dwt
(in thousands)
Year Built
Delivery Date
Total Consideration ($ in millions)
Gibraltar Eagle
Ultramax
February 2023
Vancouver Eagle
Ultramax
May 2023
Halifax Eagle
Ultramax
May 2023
As described in Item 1. Business - Permits, Authorization and Regulations , our vessels are required to comply with the BWM Convention, as well as with U.S. federal laws that require the installation of BWTS. As of December 31, 2023, each of our owned vessels have BWTS installed. For the years ended December 31, 2023 and 2022, the Company incurred $2.3 million and $6.2 million of costs, respectively, related to the acquisition and installation of BWTS. The Company expects to incur $0.9 million for BWTS that are expected to be acquired and/or installed during scheduled drydockings in 2024, which includes $0.5 million of costs accrued as of December 31, 2023. We intend to fund future BWTS costs with operating cash flows.
Drydocking Expenditures
The Company incurs costs related to regularly scheduled drydockings to ensure our vessels comply with international shipping standards and relevant environmental laws and regulations. Although the Company has some flexibility regarding the timing of its drydockings, drydocking costs are relatively predictable. In accordance with statutory requirements, we expect vessels less than 15 years old are to be drydocked every five years and vessels greater than 15 years old every two and a half years. We intend to fund future drydocking costs with operating cash flows. Generally, drydocking requires us to reposition vessels from a discharge port to shipyard facilities, which will reduce our available days and operating days during that period.
During 2023, seven of our vessels completed drydock and we paid $14.4 million for drydocking costs. During 2022, eight of our vessels completed drydock and we paid $18.4 million for drydocking costs. Drydocking costs decreased $4.0 million primarily due to a decrease in the number of vessels which incurred drydocking costs year over year as well as the impact of drydocking costs accrued prior to December 31, 2021 and paid during 2022. As of December 31, 2023, no vessels were in drydock and $3.0 million of drydocking costs were accrued. The Company expects to incur $28.6 million for drydockings that are expected to occur in 2024.
The following table provides certain information about the estimated costs for anticipated vessel drydockings and improvements in the next four quarters, along with the anticipated off-hire days:
Projected Costs (1) ($ in millions)
Quarters Ending
Off-hire Days (2)
Drydocks
Vessel Improvements
March 31, 2024
June 30, 2024
September 30, 2024
December 31, 2024
(1) We intend to fund these costs with cash from operations, cash on hand or with amounts available under the Global Ultraco Debt Facility.
(2) Actual duration of off-hire days will vary based on the age and condition of the vessel, yard schedules and other factors. Projected off-hire days includes an allowance for unforeseen events.
Convertible Bond Debt
On July 29, 2019, the Company issued $114.1 million in aggregate principal amount of 5.0% Convertible Senior Notes due 2024 (the “Convertible Bond Debt”). The outstanding Convertible Bond Debt will mature on August 1, 2024 (the “Maturity Date”), unless earlier repurchased, redeemed or converted pursuant to its terms.
Each holder has the right to convert any portion of the Convertible Bond Debt, provided such portion is of $1,000 or a multiple thereof, at any time prior to the close of business on the business day immediately preceding the Maturity Date. The conversion rate of the Convertible Bond Debt after adjusting for the Reverse Stock Split and the Company’s cash dividends declared through December 31, 2023 is 31.6207 shares of the Company's common stock per $1,000 principal amount of Convertible Bond Debt, which is equivalent to a conversion price of approximately $31.62 per share of its common stock (subject to further adjustments for future dividends).
On February 5, 2024, EB Holdings provided the Company with a Notice of Conversion pursuant to the Indenture with respect to $34.75 million in aggregate principal amount of Convertible Bond Debt. The Company elected to settle this obligation by issuing 1,098,819 shares of Common Stock on February 7, 2024, which represented 9.96% of outstanding Common Stock following such issuance.
Upon conversion of the remaining bonds, the Company will pay or deliver, as the case may be, either cash, shares of its common stock or a combination of cash and shares of its common stock, at the Company’s election, to the holder (subject to shareholder approval requirements in accordance with the Indenture).
Off-balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Other Contingencies
See Note 11. Commitments and Contingencies to our consolidated financial statements set forth in Item 8. Financial Statements and Supplementary Data of this Form 10-K for a discussion of our contingencies related to claim litigation. The potential impact from legal proceedings on our business, liquidity, results of operations, financial position and cash flows, could change in the future.
