Star Bulk Carriers Corp. current report, Q1 FY2009

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Business Context and Reporting Period

Company: Star Bulk Carriers Corp. (Nasdaq: SBLK)
Filing Type: Form 6-K (Press Release)
Date: March 16, 2009
Reporting Period: Fourth Quarter and Full Year ended December 31, 2008.
Business Overview: A global dry bulk shipping company transporting major bulks (iron ore, coal, grain) and minor bulks. The company commenced full operations on December 3, 2007. As of March 16, 2009, the fleet consists of 12 vessels (4 Capesize, 8 Supramax) with an average age of 9.9 years and a total capacity of 1.1 million deadweight tons.

Key Financial Metrics

Fourth Quarter 2008

  • Net Income: $50.2 million (vs. $1.6 million in Q4 2007).
  • Revenue: $72.8 million (includes $28.7 million from amortization of fair value of acquired time charters).
  • EBITDA: $70.3 million; Adjusted EBITDA: $42.9 million.
  • Earnings Per Share (EPS): $0.89 (Basic/Diluted); $0.41 excluding non-cash amortization and stock-based compensation.
  • Operating Income: $54.3 million.

Full Year 2008

  • Net Income: $133.7 million (vs. $3.4 million in 2007).
  • Revenue: $238.9 million (includes $80.5 million from amortization of fair value of acquired time charters).
  • EBITDA: $193.8 million; Adjusted EBITDA: $120.9 million.
  • Earnings Per Share (EPS): $2.55 (Basic) / $2.46 (Diluted); $1.16 (Basic) / $1.12 (Diluted) excluding non-cash items and impairment.
  • Operating Income: $142.8 million.
  • Time Charter Equivalent (TCE) Rate: $42,824 per day (Full Year 2008).

Liquidity and Debt

  • Cash Reserves: Approximately $60 million as of March 16, 2009 (up from $29.5 million at year-end 2008).
  • Senior Debt: Approximately $284 million as of March 16, 2009 (down from $296 million at year-end 2008).
  • 2009 Debt Repayments: Approximately $38 million in principal.
  • Share Repurchases: $13.5 million total spent to date; program temporarily suspended in February 2009.

Material Changes vs. Prior Period

  • Revenue Growth: Voyage revenues increased from $3.6 million in Q4 2007 to $72.8 million in Q4 2008, driven by fleet expansion (from 0.84 average vessels in Q4 2007 to 12.1 in Q4 2008).
  • Profitability: Net income surged from $1.6 million in Q4 2007 to $50.2 million in Q4 2008. Full-year 2008 net income was $133.7 million compared to $3.4 million in 2007.
  • Fleet Expansion: Fleet size grew by 50% in vessel count and 62% in carrying capacity during 2008.
  • Non-GAAP Adjustments: A significant portion of reported revenue and income ($28.7 million in Q4; $80.5 million for the year) is attributable to the amortization of the fair value of below/above market acquired time charters, which are non-cash accounting adjustments.

Guidance, Outlook, and Risks

Management Commentary

  • Strategy: Focus on visible cash flows via time charters, diversification of counterparties, and conservative debt usage. No exposure to new building contracts.
  • Contract Coverage: Secured $400 million in contracted revenue. 93% of 2009 operating days and 66% of 2010 operating days are covered by contracts, with some extending to 2014.
  • Market Outlook: Management expects developing economies (China, India) to drive demand. Anticipates supply/demand balance improvement due to accelerated scrapping and order book cancellations.

Risks and Contingencies

  • Covenant Waivers: Obtained waivers from all lenders until February 2010 regarding minimum asset coverage covenants.
  • Dividend Suspension: Cash dividends and share repurchase programs were suspended to reinforce liquidity.
  • Market Volatility: Operating in an environment of unprecedented volatility with unclear visibility on the duration of the economic downturn.
  • Forward-Looking Risks: Includes failure of vessel delivery, currency fluctuations, bunker price changes, and geopolitical disruptions.

Investor Verification Checklist

  • Non-Cash Revenue Impact: Verify the sustainability of earnings by analyzing the $80.5 million (full year) revenue contribution from amortization of acquired time charters, which is a non-cash accounting item.
  • Liquidity Position: Confirm the $60 million cash reserve figure and the $38 million debt repayment schedule for 2009 to assess solvency in a volatile market.
  • Charter Coverage: Validate the 93% contract coverage for 2009 and the specific rates secured to ensure revenue visibility matches management claims.
  • Debt Covenants: Review the specific terms of the covenant waivers obtained from lenders and the conditions required to maintain them through February 2010.
  • Fleet Age and Maintenance: Assess the impact of the 9.9-year average fleet age on future dry-docking costs and potential off-hire days.