Star Bulk Carriers Corp. current report, Q3 FY2013

Full document

Business Context and Reporting Period

Company: Star Bulk Carriers Corp. (Nasdaq: SBLK)
Filing Type: Form 6-K (Press Release)
Reporting Period: Second Quarter and First Half ended June 30, 2013
Date of Filing: August 27, 2013
Business Overview: A global shipping company focusing on dry bulk cargoes. As of August 27, 2013, the company owned 13 vessels and managed 6 third-party dry bulk vessels plus 7 product tankers.

Key Financial Metrics

Profitability and Revenue

  • Q2 2013 Net Income: $0.8 million (vs. Net Loss of $4.6 million in Q2 2012).
  • H1 2013 Net Income: $2.0 million (vs. Net Loss of $4.5 million in H1 2012).
  • Q2 2013 Voyage Revenue: $17.1 million (down 21% from $21.7 million in Q2 2012).
  • H1 2013 Voyage Revenue: $35.4 million (down from $49.7 million in H1 2012).
  • Q2 2013 Adjusted Net Income: $2.6 million (excluding non-cash items).
  • H1 2013 Adjusted Net Income: $5.4 million (excluding non-cash items).
  • Q2 2013 Adjusted EBITDA: $8.4 million (same as Q2 2012).
  • H1 2013 Adjusted EBITDA: $17.1 million (vs. $26.4 million in H1 2012).

Operational Metrics

  • Average Fleet Size (Q2 2013): 13.1 vessels (vs. 14.0 in Q2 2012).
  • Average TCE Rate (Q2 2013): $14,273 per day (vs. $14,628 in Q2 2012).
  • Average TCE Rate (H1 2013): $14,301 per day (vs. $15,724 in H1 2012).
  • Daily Operating Expenses (H1 2013): $5,596 per vessel (8% higher than H1 2012; excluding tonnage tax, $5,449, which is unchanged).

Liquidity, Debt, and Cash Flow

  • Net Debt: Approximately $112 million (post-equity raise and CAPEX down payments).
  • Cash Position (June 30, 2013): $29.6 million total ($18.3 million free cash, $11.3 million restricted).
  • Operating Cash Flow (H1 2013): $15.0 million (vs. $19.4 million in H1 2012).
  • Investing Cash Flow (H1 2013): Net inflow of $16.3 million (driven by $8.3 million vessel sale proceeds).
  • Financing Cash Flow (H1 2013): Net outflow of $25.9 million (primarily loan repayments).

Material Changes vs. Prior Period

  • Turnaround to Profitability: The company returned to net profitability in Q2 and H1 2013, reversing significant losses in the same periods of 2012. This was driven by reduced operating expenses, lower depreciation (due to prior impairments and fleet reduction), and non-cash adjustments.
  • Revenue Decline: Voyage revenues decreased significantly due to lower charter rates, fewer voyage charters, and a smaller average fleet size following the sale of the Star Sigma.
  • Depreciation Reduction: Depreciation expense dropped to $3.9 million in Q2 2013 from $9.4 million in Q2 2012, largely due to impairment losses recognized in late 2012 and the sale of the Star Sigma.
  • Equity Raise: In July 2013, the company completed a backstopped equity rights offering raising approximately $80.1 million, increasing market capitalization from ~$30 million to over $150 million.
  • Interest Rate Hedging: Entered into swap agreements to fix interest rates on $55.5 million of debt (approx. 30% of outstanding debt) for the period 2014–2018.

Guidance, Outlook, and Management Commentary

  • Growth Strategy: Proceeds from the equity raise are funding four newbuilding vessels: two 180,000 dwt Capesize vessels (delivery Oct 2015/Jan 2016) and two 60,000 dwt Ultramax vessels (delivery 2015).
  • Third-Party Management: The company is expanding its ship management division. It currently manages 6 third-party dry bulk vessels and 7 product tankers, with 3 additional dry bulk carriers expected within two months. Estimated annual revenue from this segment is ~$3.2 million.
  • Market Outlook: Management is optimistic about a market recovery, citing a recent rise in Capesize rates, a lower orderbook, slow steaming, and scarcity of bank financing. Demand from developing countries is expected to grow.
  • Cost Control: Management highlighted a 6% reduction in non-cash G&A expenses per vessel in Q2 2013 compared to the prior year and expects further benefits from economies of scale in third-party management.

Investor Verification Checklist

  • Equity Offering Details: Verify the final terms and use of proceeds for the $80.1 million rights offering completed in July 2013.
  • Newbuilding Contracts: Confirm the status of definitive agreements for the two Ultramax vessels (currently Letters of Intent) and delivery schedules for all four newbuilds.
  • Debt Covenants: Review loan agreements to ensure the $112 million net debt position and liquidity levels comply with covenants, particularly regarding restricted cash requirements.
  • Non-GAAP Reconciliations: Scrutinize the reconciliation of Adjusted Net Income and Adjusted EBITDA, specifically the treatment of amortization of above-market time charters and stock-based compensation.
  • Third-Party Management Revenue: Monitor the realization of the estimated $3.2 million annual revenue from third-party vessel management as new contracts are signed.