Eagle Bulk Shipping Inc (EGLE) 2022 Q3 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Eagle Bulk's Third Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference over to Gary Vogel. Please go ahead.

Thank you, and good morning. I would like to welcome everyone to Eagle Bulk's Third Quarter 2022 Earnings Call. To supplement our remarks today, I would encourage participants to access the slide presentation that is available on our website at eagleships.com. Please note that part of our discussion today will include forward-looking statements. These statements are not guarantees of future performance and are inherently subject to 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 adjusted net income, EBITDA, adjusted EBITDA and TCE. Please refer to the appendix in the presentation and our earnings release filed with the Securities and Exchange Commission for more information concerning non-GAAP financial measures and a reconciliation to the most comparable GAAP financial measures.

Please now turn to Slide 6. Notwithstanding macro headwinds and heightened uncertainties surrounding geopolitical elements, Eagle was able to post another strong quarterly result, achieving Q3 net income of $77.2 million or $5.94 per share basic. Adjusting for noncash mark-to-market gains on derivative hedges and other noncash items, net income came in at $74.3 million or $5.72 per share.

Based on this result and consistent with our stated capital allocation strategy, Eagle's Board of Directors declared a cash dividend of $1.80 per share, equating to 30% of earnings. This is our fifth consecutive quarterly dividend, bringing total shareholder distributions to $10.05 per share since we adopted our capital allocation strategy just 13 months ago.

Additionally, we opportunistically repurchased approximately 9% or $10 million face amount of our convertible bond debt in the open market. This transaction has not only resulted in a decrease in our debt outstanding but also in a reduction of our diluted share count by 296,990 shares. I think it's worth noting that we repurchased the bonds when our shares were trading around $41. So we view the transaction as quite accretive in terms of NAV.

As part of our ongoing fleet growth and renewal strategy, we acquired a high specification 2015-built scrubber-fitted Ultramax for $27.5 million. The vessel was constructed at Imabari in Japan and will be renamed the motor vessel Tokyo Eagle. Delivery is expected within November.

Separately, in August, we closed on the sale of the motor vessel Cardinal, a 2004-built Supramax. The ship was sold for $15.8 million. Pro forma for these transactions, our fleet totals 53 ships averaging about 9.8 years of age with 91% being fitted with scrubbers.

Please turn to Slide 7. Our third quarter financial results were driven by exceptional top line performance, especially when compared to the underlying market. We achieved a net TCE of $28,099, which represents a decrease of 7% quarter-on-quarter, but a significant increase in outperformance against our benchmark index to almost $9,000 or 46% per ship per day.

Our strong market performance can be attributed to a number of factors, including our commercial platform and its dynamic approach to trading ships, our FFA and commercial position heading into the quarter and our ability to capture significant value from fuel spreads as a result of our fleet scrubber position.

As we look forward to the fourth quarter, spot rates are weaker than the Q3 average. But as of today, we fixed approximately 70% of our owned available days for the fourth quarter at a net TCE of $25,040, pointing towards another quarter of significant outperformance against the BSI.

Please turn to Slide 8. Our top line performance helped drive another strong operating result with adjusted EBITDA coming in at $85.1 million after adjusting for the unrealized P&L impact of our hedges and certain other noncash items. Our trailing 12-month EBITDA run rate remains essentially flat as compared to the last quarter, coming in at $364 million, a very modest EV EBITDA multiple of just 2.3x. I would now like to turn the call over to Frank, who will review our financial performance in more detail.

Thank you, Gary. Please turn to Slide 10 for a summary of our third quarter financial results. TCE revenues totaled $128.9 million in Q3 versus $138.2 million in Q2. The decrease was mainly due to lower market rates, offset in part by a slight increase in available days. Net income for Q3 was $77.2 million.

Earnings per share for the third quarter was $5.94 on a basic basis. On a diluted basis, which primarily includes the shares related to the convertible bond, EPS came in at $4.77 for the quarter. Adjusted net income, which excludes noncash unrealized gains on derivatives and a loss on debt extinguishment came in at $74.3 million for the third quarter or $5.72 per share on a basic basis.

On a diluted basis, we achieved adjusted EPS of $4.58 for the quarter. Adjusted EBITDA for the third quarter was $85.1 million. As Gary noted during the quarter, we repurchased $10 million in face value of our convertible bonds, which reduced our diluted share count by approximately 300,000 shares.

Let's now turn to Slide 11 for an overview of our balance sheet and liquidity. Total cash at the end of Q3 was $197.6 million, an increase of $56.1 million as compared to Q2 '22. The significant growth in the company's cash balance was primarily driven by strong operating results as well as the receipt of $14.9 million in net proceeds from the sale of one vessel. These inflows were partially offset by the Ultraco debt facilities quarterly amortization payment of $12.4 million, a $4.1 million deposit paid for the purchase of the Tokyo Eagle, a $14.2 million payment to purchase a portion of our convertible bonds and $28.8 million of dividend payments.

Total liquidity came in at $297.6 million at the end of Q3. Total liquidity is comprised of total cash of $197.6 million and $100 million of a fully undrawn revolving credit facility. It is important to note that we own 3 unencumbered vessels, which provide us with additional flexibility to increase our liquidity. We intend to use cash on hand to pay for the Tokyo Eagle, which will provide us with a fourth unencumbered vessel once the Tokyo is delivered to us in the fourth quarter.

Total debt at the end of Q3 was $354.3 million, an improvement of $22.4 million from Q2, driven by the quarterly repayment of the Ultraco debt facility and the repurchase of the convertible bonds. We entered into interest rate swaps around the time of our global refinancing in early October of 2021 to fix the interest rate exposure on the term loan.

As a result of these swaps, which averaged 87 basis points, the company's interest rate exposure is fully fixed, insulating us from the adverse impact of rising interest rates.

Please now turn to Slide 12 for an overview of our cash flows from operations for the third quarter of 2022. Net cash provided by operating activities was $102.3 million, an increase of $4.3 million from Q2. Strong receivables collection drove the quarter-on-quarter increase. Our working capital management is outstanding as reflected by the company's strong overall cash conversion cycle.

The chart highlights the timing-driven variability that working capital introduces to cash from operations as depicted by the differences between the dark blue bars, which are the reported cash from ops numbers, and the light blue bars, which strip out changes in operating assets and liabilities, primarily working capital. As the chart demonstrates, the volatility caused by working capital largely evens out over time.

Please now turn to Slide 13 for a Q3 cash walk. The chart at the top of 13 lays out the increase in the company's cash balance during Q3. The revenue and operating expenditures bars provide a simple look at the company's operations with the net of these 2 bars totaling $85 million, which equals our adjusted EBITDA results.

Just to the right, you will note the strong working capital result, the convertible bond buyback, dividend and the debt service bars, which explain most of the remaining Q3 cash activity. The chart at the bottom of the slide similarly covers the cumulative year-to-date cash movements.

Let's now review Slide 14 for our cash breakeven per ship per day. Cash breakeven per ship per day came in at $11,931 for Q3. The quarter-on-quarter increase of $190 is due to higher vessel operating costs, offset in part by lower dry-docking, G&A, interest expense and debt principal repayment.

Vessel expenses or OpEx came in at $6,566 per ship per day in Q3, $982 higher than prior quarter. The increase was primarily due to unscheduled required repairs and upgrades to the ships that do not qualify for capitalization, increased crude travel costs, along with higher stores and freight expenses. In short, we continue to face COVID-related as well as general inflationary cost pressures.

Drydocking came in at $503 per ship per day in Q3, $601 lower than the prior quarter as we completed drydocking for only 1 vessel during the quarter as compared to 3 in Q2. Cash G&A came in at $1,701 per ship per day in Q3, down $17 from Q2. It is worth noting that our G&A per ship calculation is based solely on our owned vessels, whereas we operate a larger fleet, which includes our chartered-in tonnage. If we were to include our chartered-in days in our calculation, G&A would improve by almost $300 to $1,409 per ship per day.

Cash interest expense came in at $584 per ship per day in Q3, $170 lower than the prior quarter as we realized an increase in interest income on our growing cash balances. Cash debt principal payments came in at $4 lower at $2,577 per ship per day in Q3.

Looking ahead, we expect the following per ship per day in Q4. OpEx is likely to remain elevated at similar levels at circa $6,600 per day. Drydocking is expected to decline to $310 on lower dry-docking activity. G&A is expected to be unchanged at $1,700. Again, it is worth noting that this figure would be about $300 lower if we were to include our chartered-in ships. Cash interest expense is expected to decline to circa $500. Cash debt principal payments is expected to remain flat at $2,577 per ship per day. This concludes my comments. I will now turn the call back to Gary.

Thank you, Frank. Please turn to Slide 16. Year-to-date, Supramax has continued to outpace all other dry bulk segments with the BSI currently averaging just under 24,000, the highest January to September market since 2008. As mentioned earlier on the call, freight rates have moderated in recent months due to a number of factors, including lower global growth as well as uncertainties surrounding the macro landscape, which has impacted aggregate demand and sentiment.

In addition, notwithstanding a general cooling of commodity prices, the U.S. dollar strength has kept landed prices of commodities high, impacting purchasing power and trade volumes. Furthermore, notwithstanding the successful implementation of the Ukraine grain corridor since July, overall grain volumes continue to be impacted by the war and low water levels on the Mississippi River are hindering the ability to get product from the Midwest Down River for export.

Another factor, which is difficult to quantify has been the reduction of what we call spillover cargoes that we carried as a result of the extremely high container market. While we continue to move some bad cargoes and other commodities that have historically been moving on container ships, volumes are significantly lower than they were a year ago.

Chinese congestion, which unwound through the first half of the year remains at relatively low levels, primarily driven by muted short-term trade volumes. This factor also has contributed to lower Pacific freight rates due to more available tonnage. Anecdotally, the Atlantic to Pacific rate premium, which was essentially flat in Q3 is now averaging around 35% in Q4, more in line with the historic relationship.

Positively, congestion remains elevated in Northern Europe as the continent attempts to substitute its energy source away from Russian natural gas. Year-to-date, European seaborne coal imports totaled roughly 138 million tons, up 36% year-on-year. Finally and importantly, dislocations resulting from some of the aforementioned factors have positively impacted ton miles as cargoes such as grain and coal need to move across greater distances from alternative countries of origin.

Please now turn to Slide 17. Fuel prices, which reached a 10-year high in Q2 came off meaningfully during the third quarter, similar to what we have seen across the commodity spectrum. HSFO and VLSFO averaged $500 and $795 per ton, respectively. Although prices were down, the spread between HSFO and VLSFO prices widened in Q3, peaking at more than $400 per ton and averaging $295 for the quarter, up 29% compared to the prior period.

Pro forma for the Tokyo Eagle, 48 out of our 53 ships will be scrubber fitted. On an illustrative basis, given Eagle's fleet, we estimate that our scrubbers will generate approximately $58 million in incremental net income on an annualized basis using the 2022 year-to-date fuel spread figures and the forward curve for the balance of the year.

Please turn to Slide 18. Asset prices have come off their peak levels reached in June. Given the significant move up in values over the past 2 years, a cooling off was not unexpected, given that we've seen both spot and forward rates correct to the downside. S&P liquidity was thin during the summer months with minimal transactions taking place.

As mentioned earlier, in September, we took advantage of the market's illiquidity and picked up a modern high-specification scrubber-fitted Japanese Ultramax for $27.5 million. Based on our calculations, this transaction represents roughly a 20% discount to comparable deals done just a few months ago.

S&P liquidity has improved over the past month with pricing fairly stable. Looking ahead, notwithstanding short-term volatility, our view has not changed. We remain constructive on the market and asset prices in the medium term given the positive supply side dynamic.

Please turn to Slide 19. Net fleet supply growth slowed in Q2. A total of 99 dry bulk newbuild vessels were delivered during the period, down 8% year-on-year. Partially offsetting this, 13 vessels were scrapped during the same period. Notably for Eagle, just 4 midsized geared vessels were scrapped during the first 3 quarters of the year. That's 4 ships out of a fleet of almost 4,000 midsized ships.

As we've mentioned previously, despite high scrap prices, the low level of vessel recycling is not too surprising given the strength in the underlying spot market over the past 2 years. A positive from this is that there is an ever-increasing number of older ships that will inevitably need to be recycled during the coming years.

In terms of forward supply growth, the overall dry bulk order book remains at a historically low level of just around 7% of the on-the-water fleet. For 2022, dry bulk net fleet growth is expected to be 2.7%, which would be down about 25% as compared with 2021.

Looking ahead, 2023 net fleet growth is projected to drop further to just 0.6% driven by continued muted deliveries as well as a significant increase in scrapping volumes. A total of 45 dry bulk ships were ordered during Q3, down about 27% compared to the prior quarter and less than half of the average over the last 5 years of roughly 115 ships per quarter.

It's worth noting that the vast majority of ships being ordered today will only be delivered in 2024 and 2025. Although we expect some level of ordering to continue, we still believe it will remain low for the reasons we have articulated many times before.

Please turn to Slide 20. This is a new slide we are including in this quarter's presentation. It depicts the average age of the Supramax/Ultramax fleet going back 30 years, overlaid against the order book as a percentage of the on-the-water fleet. It's interesting to see how quickly the fleet is aging in recent years and will most certainly outpaced the historical high reached in 1994.

This is not only the result of the decreasing number of new buildings entering the market, but also due to the fact that smaller number of older ships are getting scrapped. As mentioned previously, the order book today remains at a historically low level, given the relative cost advantage of secondhand ships versus new buildings as well as the uncertainty surrounding decarbonization and future fuel propulsion technology, we believe ordering will remain low for quite some time.

We believe these dynamics, combined with a record low order book with a near record fleet age will further improve the supply side in terms of fleet utilization and scrapping.

Please turn to Slide 21. After reaching a multiyear high last year, the dry bulk trade demand growth is expected to come in at negative 1.6% for the full year 2022. However, after taking into account the significant ton-mile effect caused by the war in Ukraine, the deficit growth rate improved by 110 basis points. The impact to demand this year is a direct result of a global slowdown as a result of high inflation and tighter monetary policy across the developed world as well as the continuation of Chinese restrictive zero-COVID policy.

For 2023, the IMF is currently projecting global GDP growth to reach 2.7%, a decrease of 50 basis points as compared to the current year estimate. In terms of dry bulk, trade demand growth is expected to improve by 240 basis points in 2023 to reach a level of positive 0.8% on a core basis and higher when factoring in a positive ton mile effect.

Please turn to Slide 22. In evaluating dry bulk demand in more detail, growth rates for 2022 are now expected to come in lower for both major and minor bulks. This is primarily driven by downward revisions to volumes in steel, fertilizer, forest products and cement.

As we look into 2023, there's a great deal of variability in forecasted growth rates amongst the various dry bulk commodities. Volumes for infrastructure-related commodities such as iron ore, steel and cement are expected to come off based on the current views of weaker Chinese demand and lower global economic activity.

Coal, on the other hand, which typically represents anywhere from 15% to 20% of our cargoes is affected to grow by over 2%, and we expect this figure to be even greater when factoring in the increased ton mile effect for this particular commodity, primarily as a result of Europe's changing energy mix.

Additionally, grain, which typically represents anywhere from 10% to 15% of our cargo mix, are projected to grow by 4.3% as Black Sea exports are expected to normalize and grain production led by soybeans increases in both the U.S. and in Brazil.

Please turn to Slide 23. Given our exclusive focus on the midsized segment with an ability to carry all dry bulk commodities and a commercial platform with a track record of meaningful outperformance, I believe we are in an optimal position to maximize utilization and capitalize on a rapidly evolving environment.

Looking forward, notwithstanding current uncertainty in the macro landscape, we remain optimistic about the medium-term prospects for the dry bulk industry, particularly based on strong supply side fundamentals. With a modern fleet of 53 predominantly scrubber-fitted vessels, roughly $300 million of liquidity, Eagle is in a very unique leadership position, and we're looking forward to continuing to deliver superior results for our stakeholders at large. With that, I would like to now turn the call over to the operator and answer any questions that you may have. Operator?

(Operator Instructions) And our first question will come from Omar Nokta of Jefferies.

First off, I can see you're sounding a bit more potentially acquisitive given the softer market here recently, at least more so than you've been, call it, since the first half of '21. You agreed to buy one Ultramax. I wanted to get your thoughts here on how you see the platform from here. I know this is probably a bit sensitive, but you've been reported to have looked at the Grindrod deal, which would have added a good amount of Handysize exposure. Is that something you're interested in getting into the Handys? Or should we think from here that it's still more about focusing on Ultras and Supras?

Yes. I think what I would say in general terms is that we are -- although we're one of the largest owners of Supramax, Ultramax vessels, we're a very small part of the market, and we feel that increasing in our core segment makes a lot of sense. Having said that, expanding beyond that, if a transaction were to bring us into other subsegments within dry bulk as well, we're very comfortable with that. But it's not a specific desire for us because we think we have the ability to increase within the, call it, the 55,000 to 65,000 deadweight size.

But there are crossovers between them. So as I said, we're not opposed to getting outside of our core focus of Supramax/Ultramax under the right circumstances.

I might add going forward. So we added this ship, it was opportunistic. We felt the market was illiquid and we picked that ship. A scrubber-fitted ship or what we think is a really attractive number. And we're going to continue to look at opportunistic additions as well. We think that over the next number of months, as you know, we have a significant cash balance, total liquidity of some $300 million.

And so we think that adding in at levels below where the peak was in May, June of this year, given our constructive view of the kind of medium term, given what we keep talking about how compelling the supply side looks particularly with the aging fleet. And so I think you'll see us continue to add on an opportunistic basis.

I guess, Frank went over the interest rate swap that you entered into when you secured that credit facility last year. Generally speaking, you mentioned being opportunistic. How are you viewing acquiring assets here in this higher interest rate environment? How are you thinking about how you execute those opportunities versus, say, 2 years ago when you were a bit more acquisitive?

Look, it's a great question because a year ago, Frank mentioned, right, we entered into those swaps at 87 basis points. Today, 1 year LIBOR is 5.5%. So it's a completely different environment. We have decided to pay for the Tokyo Eagle with 100% of cash given our balance. But we're keenly aware of the fact that if you put leverage on a vessel today of 50%, your interest -- your debt is significantly more expensive, right? So it just is part of the part of the discussion.

Obviously, we haven't hedged future debt that we might take on for vessels. I think it's helpful in that it gives people pause and will limit speculative buying because it just makes ownership and those cash breakevens that much greater if you're not using cash. And of course, if you're using all equity, then the cost of capital is even higher on an overall basis, on a weighted basis.

So it definitely comes into the equation for us. But given our robust cash balance at the moment, it doesn't impact the Tokyo Eagle. And we likely would -- if we were to acquire another 1 or 2 ships, we likely would do that with cash as well, but that's a decision to be taken at that time.

Our next question will come from Ben of Stifel.

I wanted to start a little bit macro. I really just had 2 questions. But first of all, I had sort of expected or I guess, normally, by this time of the year, in November, we normally would see some seasonal uptick in grain and everything else. And I appreciate that this year is different. But Gary, if you just -- do you have any thoughts on if we're going to see a seasonal surge in dry bulk demand this year or if all of the crazy things that are happening in the world might make this a year when we don't actually see that?

Yes. I think as you said, it's anything but normal. There's a lot of things at play at the moment, not to recap them all again. But even the North American harvest, we're having challenges getting grain down river because of low water levels. So that's, of course, not helpful. But I think it really more comes down to demand even than the supply side of things. There's just less demand.

I mean even on the soybean front year-to-date before U.S. exports, China's soybean imports are down 3% and Brazil had plenty of product as an example. And so I think you have overall, the revisions downward of fertilizer that was expected to be flat just a quarter ago is now coming in at almost down 5% and things like that. So we're much more cautious.

The good news is that these downward revisions really speak to what's happened over the last 3 to 4 months and of course, the balance of the year. But we've enjoyed a pretty robust market where October settled at over 18,000 a day for a Supramax on the BSI. So I don't -- we may not -- we're not planning on a pop here, if you will, for the quarter, but we -- as you know, we just reported already having 70% coverage at 25,000, which we think is a pretty robust number. We positioned ourselves coming into the quarter for that. And of course, we'll take an upside. But at the moment, we're not planning on it.

And then for my second question, it sort of goes to capital allocation, ties in with what Omar was talking about. Obviously, asset values have come in a little bit. But as you say, we're sort of in a period of uncertainty. Interest rates are higher. Cost of capital is higher, I guess -- and then also, interestingly, you guys bought back $10 million of converts. As you sort of -- it sounds like you're open for more acquisitions, but how do you balance that against something like buying the converts here, taking off potential dilution, just also strengthening the balance sheet a little bit further.

Like we're in a period where, again, there's some uncertainty. You guys want to grow the fleet, but there's other options too. So maybe talk through that balance a little bit.

Sure. So I mean, I'll start with the fact, we feel very comfortable with the strength of the balance sheet. As I mentioned, $300 million of total liquidity, including $100 million undrawn revolver. And as Frank mentioned, the Tokyo Eagle will be our fourth completely unencumbered vessel. So we could add -- we have an accordion feature under our first lien bank debt facility. So we could add debt to those, freeing up more cash if we desired.

But again, we also talked about the underlying cost of debt today. So absolutely, we look at the balance between and this quarter, we did both. We bought back the $10 million face value of the bonds. We did that when our shares were trading at around $41. So we felt it was compelling to take off that future dilution. And that, along with acquiring ships are kind of the balance along the way. So I think we've demonstrated that we're able and willing to do both, but really it depends where ship values are versus where our shares are trading. And then ultimately, how much cash we want to keep on the balance sheet.

So those are things we have to ask ourselves every day as we come in. But we remain very constructive on the market because of the supply side. So if we can use this period where values have come in somewhat and let's see where they are over the next few months, if we can continue to build on the fleet now, now that the heavy lifting of our -- of selling our older assets, we've done 20 ships. We only have one more ship that's over 15 years old that likely will be sold before the next special survey drydock. Then we can focus -- although we've been able to grow the fleet, a lot of that growth has been offset by a netting of sales. And now we think we're in a position where as long as we can do it accretively, building the fleet from here, we think, makes sense.

(Operator Instructions) And our next question comes from Liam Burke of B. Riley Financial.

On the OpEx, they were higher sequentially. There were a lot of onetime charges that will probably spill into the fourth quarter. But as I look at a more normalized OpEx rate, do you still see the need to continue to invest in the vessels? Or do you see some flattening or declining of OpEx per vessel?

Yes. I mean I think right now, it's really hard to project out because we're in an environment where we're seeing higher costs, particularly around things like crew travel. I don't know if you've tried to book a flight lately, but the prices are extraordinary and particularly some of the ones from Eastern Europe, there's less flights and costs are high.

And then also moving things, spares and stores and things like that. So hopefully, we believe that hopefully will moderate, but it's hard to have visibility on it. And in terms of upgrades. As I've said before, we're keenly focused on trying to keep OpEx down, but our first focus is to ensure the ships are able to trade without being hindered in terms of cargo holds and low-friction hole coatings. So they're efficient and not burning too much excess fuel and things like that.

And sometimes, we'll take a ship out of service and it doesn't qualify for drydock accounting because it's not up to the 5-year cycle. So it's hard to have real visibility, but we are keenly aware that those levels are up, and we're looking to hopefully bring them down. But as we said and as Frank said in the prepared comments, we expect the fourth quarter to remain elevated. And of course, we'll provide guidance for Q1 as we move forward.

And on the macro front, I mean, coal is an important commodity that you ship. There's been dislocation with longer route miles. But generally, are you seeing overall demand for coal to be able to support your -- the overall demand in the shipping part of the business.

Sorry, can you just repeat that?

Sure. There's been a lot of dislocation on demand for coal due to the Ukraine crisis. In a normalized basis, are you seeing overall demand for coal increasing and helping to boost the rates?

Yes. I think the short answer is we are, right? Because what we had this year is China is down about 16%, which is a meaningful amount, 40-some-odd million tons, partly because of domestic production, but also because of the COVID lockdowns and lack of economic activity.

And notwithstanding that, coal overall this year is relatively flat. India was up and Europe is importing significantly more coal. So as we look forward into next year, expectation is for China to be flat but for the world overall to be up a couple percent. And as mentioned in the prepared remarks, we think that 2% increase next year, that's forecasted on a ton mile basis will be significantly higher again because of that dislocation that you referred to.

So I think long term, not an upward trend for coal, but I think in the short term, given energy security, we think it's going to show growth at least for 2023.

Our next question will come from Poe Fratt of Alliance Global Partners.

Gary, just 2 questions. You covered OpEx. But on the capital allocation front, I mean, should we expect from here continued buybacks of the convert, not opportunistic basic basis, obviously. But is that something that is sort of the primary focus on capital allocation versus stock buybacks? And then secondly, can you talk about the change in your quarterly presentation on your FFA book? And also just talk about your hedging strategy going forward?

So why don't I start with the -- on the FFA book, we decided to break out the sells and then the buybacks because we do a number -- we do some of that prior to the quarter that we're in. And because of that, if we didn't break it out, it indicates a misalignment. In other words, the profit from the buyback, you can see that we bought back the sales profitably. That number would push the effective rate of the sells, remaining sells up dramatically. And so what would have shown is that we had some sells at levels where the market never reached for Q4.

And so it just it would indicate something that didn't really happen. So by breaking it out, it gives you more clarity, and that's why we've done it. And if that's clear, then I'll move on to -- sorry, do you have something?

Well, yes, I guess -- so if you look at your net position for 2023 you're effective unhedged.

So as of September 30, the FFA position was effectively unhedged. That is correct. And part of -- so I can only speak to September 30, not what we've done since then. But the forward market for the -- particularly the paper market for 2023 has been very backward dated all along. And I think if you look at the market today for CAL-23, it's around 12,000.

So a significant discount to the current market. I mean we're in a bit of a weak period right here. But as I mentioned, October settled at 18,250. And so it's a decision as to locking in that kind of a number on paper. I think we've been fairly successful at timing when we use paper and when we use physical. And we don't disclose our physical book. But you're correct. The paper position as of September 30 was essentially neutral.

If I move on to capital allocation. I think, again, we come in every day asking what is the best use of capital. And when our shares traded down around the $41, we thought the buyback of the convert made sense. The convert, because it's so in the money, it trades highly -- it's highly correlated to the way our shares trade. And so buying them back when the shares are down is similarly accretive to -- as if we were buying back shares.

But of course, if you believe that buying back shares are beneficial to share price, that pushes the price of the convert up. So it takes away future dilution at maturity. And so as we've said before, we believe that setting aside capital, cash to buy back the convert either at maturity or prior to maturity, which is what we did for $10 million of the face value in the last quarter, we think makes sense. And so we'll be -- I think we'll be opportunistic about it. But on any given day, there's a decision making -- a decision process as to what it is. But based on my comments, I think we believe that buying back the convert is similar to buying back shares, but has other benefits, and I'll leave it at that.

And our next question will come from Clement Mullins of Value Investor's Edge.

Following up on the questions regarding the convertibles, should we think about the repurchase as kind of a one-off opportunity that you took advantage of? Or do you believe this is something you could repeat going forward?

It's definitely -- first of all, thanks for the comment on the quarter. It's definitely something we could repeat. Our shares traded down during the quarter. We saw it as an opportunity. And we intend to be opportunistic as well, just as we believe we were on the asset purchase this quarter.

So I'm not going to say that you should consider this to be a quarterly event. But if we believe it presents good value. and the best value for our shareholders' capital, then you could see us acting again. So it's really just going to have to be a wait and see. But we clearly, I think, have demonstrated -- I've said that in the past, and people said, but Gary, you haven't done anything. So I think now we've demonstrated that we've acted on buying back the converts. So you know that we were willing to do so and we're able to do so, and I think that speaks to how we might act in the future.

And I'm showing no further questions. I would now like to hand the call back to Gary Vogel for closing remarks.

Great. Thank you, operator. We don't have anything further. So I'd like to thank everyone for taking the time today to be with us and wish everyone a good day and a good weekend.

And this concludes today's conference. Thank you for participating. You may now disconnect.