Eagle Bulk Shipping Inc (EGLE) 2017 Q2 法說會逐字稿

Greetings, and welcome to the Eagle Bulk Shipping Second Quarter 2017 Results Conference Call. (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.

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 is available on our website at www.eagleships.com.

Please note, part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and are inherently subject to risks 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 includes certain non-GAAP financial measures including EBITDA and adjusted EBITDA. Please refer to Slide 31 in the presentation and 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 then 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 a TCE of $9,147 for the second quarter, outperforming the Baltic Supramax Index by almost $1,450 per day, which equates to 19% when adjusted for our fleet specification.

Our strong performance on the revenue side helped drive the 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 modern CROWN-63 Ultramaxes acquired from Greenship Bulk, with just one vessel now remaining to be delivered. Separately, and as part of our objective to renew and optimize the existing fleet, we sold 2 2008-built Diamond 53 Supramaxes. It's worth noting that both of these vessels are due for dry dock within the next 12 months.

Lastly, I'm pleased to report that we closed on a $61.2 million 5-year credit facility, which bears an interest margin of 295 basis points with no amortization payments until 2019. This facility, which can be upsized 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, SEB as well as DVB, who is a new lender to Eagle, for their support in this transaction.

Please now turn to Slide 6 for a discussion on our operating business. Over the past 1.5 years since Eagle began transforming it's business from being a tonnage provider to an active owner/operator, the company has been increasing its third-party charter-in business. In the second quarter, our charter-in business resulted in 744 total operating days across 19 distinct ships. To put this in perspective, the cumulative annual growth rates 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 5 weeks into the quarter.

We charter-in third-party ships in order to supplement and complement our own fleet business and create arbitrage opportunities around certain vessel and cargo positions. The objective of our operating business is to generate a positive contribution to our own 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 own 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 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 own 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 it 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 a 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 a 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 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 6 out of the 8 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, fronthaul 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 8 CROWN-63 Ultramaxes from Greenship Bulk with just 1 more remaining to be delivered. On the sales side, we sold 2 of our 2008-built Diamond 53 Supramaxes. 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 own fleet development since we began to implement our strategic plan. As you'll note, we've acquired a total of 11 Ultramaxes, averaging over 63,000 deadweight tons and just 3.1 years in age at purchase. And we sold the total of 8 ships, which average approximately 51,000 deadweight tons and 13 years in age. Each of these ships sold was due for drydock within 1 year of its sell date. Avoiding these drydocks has saved the company over $7 million in CapEx.

Each time we acquire a newer, larger and more efficient vessel or sell a small or older and less efficient one, we upgrade our overall fleet, 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'll review our financial performance.

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 from the same period in 2016.

The company reported a net loss of $5.9 million for the second quarter as compared to a net loss of $11.1 million in the prior quarter and a 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 this 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 slide shows, the positive trend in cash flow from operations continues with cash flows used in operations significantly improved from the low of $19.5 million in Q1 2016. If change 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 balance is 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 undrawn revolving credit facility availability of $25 million.

Total debt, which is net of debt issuance less discount costs, 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 is $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 the draw of $40 million on 6 of the 9 Greenship vessels that had already delivered. The draw on the final 3 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 is appropriate to look at OpEx under a multi-quarter average. Excluding extraordinary items relating to certain upgrades as well as the 2 vessel 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 actual and forecasted drydocks by year. As you will note, we are now completing 3 drydocks in 2017, which is an increase from our last earnings call. We took the decision to advance 2 drydocks from early 2018 in order to upgrade hull 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 affect future docking requirements.

Looking ahead, we have 11 vessel scheduled for drydock in 2018. The breakdown is as follows: 7 are due for their first special survey, 1 is due for its second special survey, 1 is due for its third special survey, and 2 are due for their fourth intermediate survey. It's worth noting that the first special surveys are typically less intensive with lower cost.

In terms of Ballast water treatment, we are pleased to report that we have now received extensions from the U.S. Coast Guard, effectively pushing out any installations into at least 2019.

Let's now review Slide 16 for our cash breakeven per vessel per day. The total cash breakeven per vessel per day for the first half of 2017 was $7,188.

Now let's take a look at the main inputs. We have already covered OpEx earlier in the presentation. One of the 3 scheduled drydocks for 2017 was started in Q2. The increase in cash G&A was driven in large part by the continued development of our commercial platform. It is worth noting that during the quarter, we had an average of 43 vessels under ownership. Please also keep in mind that we managed 19 different chartered-in ships in the quarter. After the delivery of all of the vessels from Greenship Bulk, our own fleet will consist of 47 vessels. The corresponding cash G&A cost per vessel per day, inclusive of the chartered-in days and the fleet of 47 vessels, is in line with our 2016 full year figure.

This concludes my review of the financials. I will now turn the call back to Gary, who will continue his discussion of the business and provide context around industry fundamentals.

Thank you, Frank.

Please turn to Slide 18. Starting from early February, when the BSI hit a seasonal low of $6,900 per day, 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 in 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-8s 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 '08, the 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 continued their downward trend from a historical perspective but still remained 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 '17 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 '17 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 Capes going for demolition. During the first quarter, 14 Capes were scrapped versus just 5 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 the 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 scrapped in '17, 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 Panamaxes and Capes representing roughly 82% of the orders placed. Although there has been an uptick in ordering since last year, it's important to note that levels still remain at the lowest it's been in 20 years. And at this moment, given relative pricing differential between secondhand ships and new buildings, 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 '17 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 a discussion on the grain market. Global grain seaborne trade is expected to reach over 500 million metric tons in 2017, representing a strong increase of over 5% year-on-year. This an important trade for Eagle as Supramaxes and particularly Ultramaxes 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% of the total trade. Soybeans, which are high in protein and fiber content, are processed into soy meal, which is typically used for animal feed and soybean oil, which is used for food production but also in manufacturing of plastics and other products.

China's appetite for soybeans has remained strong. The cumulative annual growth rate of its imports as depicted in the chart located on the lower left-hand corner of Slide 21, equates to approximately 12% for the past 4 year. Product has been primarily sourced 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 bulks. 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 5-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 5-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 now 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 '17 to CNY 5 billion. Total imports for 2017 are expected to reach almost $1.1 billion, an increase of 7% year-on-year.

Chinese iron ore inventories as depicted in the bottom left-hand corner of Slide 23 appear to have plateaued around 130 million metric tons since May but remain at record levels and significantly above their 5-year average. On the top right-hand corner, we depict monthly coal imports, which appear to be around their 5-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 this growth coming from Australia and Indonesia.

Lastly, on the bottom right-hand corner chart, we depict Chinese minor bulk imports. For full year '17, imports are expected to reach 295 million metric tons, an increase of 8% year-on-year, which would represent a 4-year high. Contributing to this is increase imports of bauxite, Manganese ore, nickel ore, steel and general agri bulk 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 is expected to grow by at least 3% as compared with just 1% during '16. 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 are 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, the 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 a 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 the volatility as seen for 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 onto 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 applies 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 Instructions) Our first question comes from Magnus Fyhr of Seaport Global.

Just a couple of questions. First, with the BDI here ticking up again, I mean, how do you look at -- how do you see the S&P market currently? Is it getting more difficult to get the high quality ships? Or are there still opportunities there? I guess, it's [a matter of price] but maybe you can elaborate on that a little bit.

Sure, 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-ask widened on the S&P, but we didn't really see values coming down. Today, as we move towards summer and the expectations with 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.

And also, the vessels that you have earmarked for sale, is it the surveys -- upcoming surveys 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 -- would you -- could you sell some of these vessels and not replace them if it's difficult to find new candidates?

Yes, 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 would trigger a sale. We see it as -- we want to continue to sell off old or less efficient ships when we can get what we believe is appropriate value for them. And as I mentioned, we don't see a problem in acquiring 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 at the -- in the short term.

Okay. And maybe switching gears, going to Slide 15, I guess, you 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 gave the water Ballast treatments have been pushed out to 2019. Can you just kind of clarify that?

Yes. So there's 2 regimes in place, one is the IMO, right, which has 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 effect. 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 being an absolute, that we would not operate ships without Ballast water treatment even if IMO 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.

Okay. Great. And just one last question. Looking at the TCE rates for the quarter of $9,147 per day, if I take the net revenues of $40.3 million and divide that with almost 4,500 days, I get to $8,900 a day. Is that the difference to the FFAs? Or -- that's about $900,000 for the quarter, so it's pretty significant. But is that the FFAs that makes up the difference?

Yes, I mean, thanks for that because I think it's definitely 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 results as well as bunker hedging. So a significant part of that is the realized FFA, gain or loss. The one thing we also do, as you may recall, we have one long-term legacy charter that was a Japanese Handy-sized vessel that we recently swapped into an Ultramax. That legacy charter, we exclude from our TCE performance because it would unduly impact it. So when we calculated our beat because that was something that 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.

Our next question is from Amit Mehrotra of Deutsche Bank.

So I wanted to just follow-up real quickly on the fleet size question that was just asked. Now, Gary, maybe just approaching it from a different perspective. Is there -- if you look at the fleet today and the size of the fleet today, is the company at optimal economies of scale at the current size? Or maybe are there additional synergies on the cost side, particularly as it relates to some of the just OpEx and G&A side of things? Are there opportunities there from getting a little bit bigger? Or you're just kind of at a critical mass right now needed to achieve that optimal level?

Sure, 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 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 3 offices now, having opened an office about 1 year ago in Europe. And as we -- 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.

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, 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 of years?

Yes. So I mean, it's a good question. First of all, I think, Frank mentioned OpEx should be seen over multi-quarter. But the main focus is to run safe environmentally-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, we'll 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 could -- 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.

So then, Gary, (inaudible) 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, unless it's maybe 2 separate reactions. One is, wow, they're really good. How do we get there? And the second is, wow, they must be cutting some corners. So I don't 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 at sub-$5,000 a day?

Yes. so what I would say to that is that OpEx inputs are pretty transparent, and we know what they are. And I've 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.

Okay. That's fair. 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? Just any color around there.

Yes, 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 Greenships, kick in. And then we begin to look at amortization in 2019, into '20. And you could look at, at least, $1,000 there additional at that time.

Your next question is from Fotis Giannakoulis of Morgan Stanley.

Congratulations for the result performance of the Supramax -- 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 better information that you have? Are there arbitrages that you have managed to take advantage? What I'm trying to understand, how sustainable this outperformance is.

Yes. Thanks, Fotis. 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, having 3 offices globally that communicate and being there 24/7 as opposed to being here and being 6 hours behind Europe, 12 hours behind Asia, we have people focused on that. We're close to decision makers. We're booking as 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 cargoes. But because they're done on a per ton basis, we can charter-in vessels which gives us optionality and then creating that arbitrage. We've also chartered a number of ships over the last 12 months for 1-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 could redeliver those ships at the early part. And in what has been a rising market, those also add 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 value throughout the cycles.

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

Yes, so I would say that, never say never. But we are primarily -- 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 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 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 of both shippers, traders and receivers. And if we can provide services to them that add incremental benefit to Eagle on a risk-adjusted basis, we will definitely pursue them.

One last question about the trade. You obviously have a very good view of what are -- of several type of commodities. You mentioned about 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 in the commodities and how these flows are changing?

Yes. So I mean, in terms of the grains, clearly soybeans are driving the lion's share of that 5% growth. As I mentioned, a 12% annual growth over the last 4 years. And that's really primarily driven by China's 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 are -- one of the benefits of them is it's quite diverse. When you have certain cargoes improving, other ones not. But scrap has 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 export is extremely strong as we alluded to. So -- but the thing about these is this is definitely positive. And what we look for overall when we see a market move is, is it a singular commodity? And is it just seasonal like a grain? Or do we see it broad-based? And we look to broad-based demand improvement as kind of a bellwether for global economy getting better in 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 mentioned, bauxite is also up significantly. So we're seeing quite a few cargoes that are positive, and of course, that bodes well against the supply side that we spoke about.

Your next question is from Espen Landmark of Fearnley.

I wanted to ask on the outperformance versus the BSI. And I know you're adjusting for the size and the comparison. But what kind of rate differentials are you seeing for your early 2000 Supras versus the more -- the Ultramax differences?

Yes. So I mean, we don't speak specifically about individual ships in that regard. But I think in broad terms, Supramax is -- get down in the low 90s in general terms as compared to the test 52, the BSI test 52. Ultramax is up in the mid-teens, 115. So you can see a spread as much, 25%. There are outliers further down and above, but that kind of low mid-90s for earlier Supramaxes is probably a good general number to go with. And I think just -- and just a follow-up, Espen. I think that's really important, right, because ultimately, that's where 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 ultimately comes down to an outperformance. So if one of our Ultramaxes is beating the index by 5%, we see that as a miss on our side and look to why and what's happening. Conversely, as I mentioned in earlier Supra, which may trail the index by 5%, we can equate that to real value creation depending on the specification of the ship. And again, that specification goes to the asset value, right? So it's about a yield.

Yes, I see. And do you kind of have a rough split in terms of the percentage of fixtures on a TCE basis? And then what's kind of -- per voyage or per ton basis currently?

Yes, we don't go quarter-to-quarter on voyage basis. Having said that, it's -- I think what I would say is that the 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 a voyage basis, we can use any of our ships and other ships as well, and we're usually dealing with a decision maker. So I think historically, if we look -- we have disclosed probably about a 1/3 on voyage basis, but we expect that number to increase as we go forward. And we also are booking more and more cargoes on a forward-basis contracting, individual cargoes as well as small COAs as we build out the cargo book for Eagle.

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

Yes, I mean, there -- obviously, there's a correlation. And what we saw back when we did the Greenship Bulk acquisition, there was a lot of optimism, and the forward market on the physical was higher. So you could lock in returns in excess of where they are today, and so that bodes well for the -- for supporting the asset price because you could take in a kind of mid-upper single-digit return unlevered on that asset, whereas today, if you look at the asset price paid, that number has dropped off. So there's clearly a correlation. But as I mentioned earlier, I think it was to Magnus' question, and that is, 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 at those asset prices. We just don't see a significant down -- a downside in that, and owners are holding firm.

Our next question is from Clinton Webb of Axia Capital Markets.

Real quick on the $61.2 million, the new facility. Can you remind us what conditions you need to bump that up to be $100 million?

This is Frank. I'll jump in. You actually have to go back to the bank's credit committee. So we would -- if we had an acquisition that we'd like to add moderate leverage to, we'd go back to the banks with the transaction. They would run it through credit and then as simple as that. And 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.

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?

Yes, I think there's no ideal 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, we've -- what we believe we've done is created some flexibility here to really widen that scope, and we're evaluating opportunities across the board.

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

Yes, so we don't give guidance beyond what we fixed so far. And just to be clear, the 755 is the number of third-party days, whereas we've covered, I believe, the number 67% of the owned fleet, which equates just under -- the total for the quarter is 4,000 days. So 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 that got fixed 4 weeks ago when the market -- 4 to 6 weeks ago when the market was lower. We also, of course, have the opportunity to do additional arbitrage during the quarter. So as we say, we don't give guidance on that, but the market is stronger today than what it has been when a lot of these -- some of these rates were fixed. And we also spoke to the fact that we took delivery of 6 of the 8 ships, and yet still increased the number of percentage of our fleet in the Atlantic, right? And backhaul 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 -- let's say, if you look at the overall rate for an Ultramax being at $9,000 and you bring in that ship into the Atlantic at $2,000 into the Gulf or something like that, that deficit of $7,000 a day impacts significantly on the fleet. It's not gone. It's an investment because now you have a ship that's going to be operated in the Atlantic. Or potentially, you can fix that ship out again in the mid-upper teens. And through this year, there has been many times when Ultramaxes are getting well in excess of $20,000 a day from the Gulf back out to the far East. And that's -- it's that optionality in the model that you create by having these various positions. So it's definitely less of a static in terms of revenues, but I'll leave it at that.

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

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

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