Recent Developments:
Eagle’s CEO Gary Vogel commented, “We posted another robust quarterly result, generating net income of $77.2 million as our team successfully navigated a volatile landscape. With our commercial platform and dynamic approach to trading ships, as well as our ability to capture significant value from fuel spreads as a result of our fleet scrubber position, we were able to achieve a TCE of $28,099, representing significant outperformance against the BSI of almost 46%.
Consistent with our stated capital allocation strategy and strong results, we declared our fifth consecutive quarterly dividend since adopting our policy late in 2021, representing 30% of earnings and bringing total shareholder distributions to $10.05 per share. Additionally, we opportunistically repurchased approximately 9% of our convertible bond debt in the open market at advantageous prices, resulting in both a decrease in debt outstanding and a reduction to our diluted share count.
On the strategic front, we capitalized on the illiquidity in the S&P markets in early September and executed our 51st transaction, acquiring a high-specification 2015-built Japanese scrubber-fitted Ultramax for $27.5 million. Based on our constructive view of supply side fundamentals, we are likely to add further tonnage on an opportunistic basis as we head into next year, consistent with our continued focus on strategically expanding the business and adding incremental value for our shareholders.”
1 These are non-GAAP financial measures. A reconciliation of GAAP to non-GAAP financial measures has been provided in the financial tables included in this press release. An explanation of these measures and how they are calculated are also included below under the heading “Supplemental Information – Non-GAAP Financial Measures.”
Fleet Operating Data
Fleet Development
Vessel sold and delivered in the third quarter of 2022
Results of Operations for the three and nine months ended September 30, 2022 and 2021
For the three months ended September 30, 2022, the Company reported net income of $77.2 million, or basic and diluted income of $5.94 per share and $4.77 per share, respectively. In the comparable quarter of 2021, the Company reported net income of $78.3 million, or basic and diluted income of $6.12 per share and $4.92 per share, respectively.
For the three months ended September 30, 2022, the Company reported adjusted net income of $74.3 million, which excludes net unrealized gains on derivative instruments of $7.1 million and a loss on debt extinguishment of $4.2 million, or basic and diluted adjusted net income of $5.72 per share and $4.58 per share, respectively. In the comparable quarter of 2021, the Company reported adjusted net income of $72.1 million, which excludes net unrealized gains on derivative instruments of $6.3 million and a loss on debt extinguishment of $0.1 million, or basic and diluted adjusted net income of $5.63 per share and $4.52 per share, respectively.
For the nine months ended September 30, 2022, the Company reported net income of $224.7 million, or basic and diluted income of $17.31 per share and $13.86 per share, respectively. In the comparable period of 2021, the Company reported net income of $97.4 million, or basic and diluted income of $7.96 per share and $6.34 per share, respectively.
For the nine months ended September 30, 2022, the Company reported adjusted net income of $220.4 million, which excludes net unrealized gains on derivative instruments of $8.5 million and a loss on debt extinguishment of $4.2 million, or basic and diluted adjusted net income of $16.97 per share and $13.59 per share, respectively. In the comparable period of 2021, the Company reported adjusted net income of $121.7 million, which excludes net unrealized losses on derivative instruments of $24.2 million and a loss on debt extinguishment of $0.1 million, or basic and diluted adjusted net income of $9.95 per share and $7.93 per share, respectively.
Revenues, net
Revenues, net for the three months ended September 30, 2022 were $185.3 million compared to $183.4 million in the comparable quarter in 2021. Net time and voyage charter revenues increased $21.8 million due to an increase in available days driven by an increase in owned days and chartered-in days, partially offset by a decrease of $19.9 million due to lower charter rates.
Revenues, net for the nine months ended September 30, 2022 and 2021 were $568.4 million and $409.8 million, respectively. Net time and voyage charter revenues increased $80.4 million due to higher charter rates and increased $78.2 million due to an increase in available days driven by increases in owned days and chartered-in days.
Voyage expenses
Voyage expenses for the three months ended September 30, 2022 were $40.8 million compared to $30.3 million in the comparable quarter in 2021. Voyage expenses increased primarily due to an increase in bunker consumption expense of $10.1 million driven by an increase in bunker fuel prices.
Voyage expenses for the nine months ended September 30, 2022 were $120.7 million and $81.4 million in the comparable period in 2021. Voyage expenses increased primarily due to an increase in bunker consumption expense of $29.1 million driven by an increase in bunker fuel prices, an increase in port expenses of $8.5 million driven by an increase in fuel surcharges and cost inflation and an increase in broker commissions of $1.7 million driven by an increase in related revenues.
Vessel operating expenses
Vessel operating expenses for the three months ended September 30, 2022 were $33.1 million compared to $28.1 million in the comparable quarter in 2021. Vessel operating expenses increased primarily due to an increase in repair costs of $3.1 million driven by discretionary upgrades and certain unscheduled necessary repairs, and an increase in crewing costs of $2.1 million driven by crew changes and expenses related to COVID-19 and the war in Ukraine. The ownership days for the three months ended September 30, 2022 and 2021 were 4,831 and 4,697, respectively.
Average daily vessel operating expenses excluding one-time, non-recurring expenses related to vessel acquisitions, charges relating to a change in the crewing manager on some of our vessels and discretionary hull upgrades for the three months ended September 30, 2022 were $6,566 as compared to $5,401 for the three months ended September 30, 2021.
Vessel operating expenses for the nine months ended September 30, 2022 and 2021 were $88.2 million and $73.3 million, respectively. Vessel operating expenses increased primarily due to an increase in crewing costs of $7.8 million driven by crew changes and expenses related to COVID-19 and the war in Ukraine, an increase in the cost of lubes, stores and spares of $3.1 million driven by cost inflation and an increase in repair costs of $2.4 million driven by discretionary upgrades and certain unscheduled necessary repairs. The ownership days for the nine months ended September 30, 2022 and 2021 were 14,424 and 13,407, respectively.
Average daily vessel operating expenses excluding one-time, non-recurring expenses related to vessel acquisitions, charges relating to a change in the crewing manager on some of our vessels and discretionary hull upgrades for the nine months ended September 30, 2022 and 2021 were $5,991 and $5,114, respectively.
Charter hire expenses
Charter hire expenses for the three months ended September 30, 2022 were $19.8 million compared to $10.7 million in the comparable quarter in 2021. Charter hire expenses increased $8.3 million primarily due to an increase in chartered-in days and increased $0.7 million due to an increase in charter hire rates due to improvement in the charter hire market. The total chartered-in days for the three months ended September 30, 2022 were 1,000 compared to 563 for the comparable quarter in the prior year.
Charter hire expenses for the nine months ended September 30, 2022 were $63.8 million compared to $25.4 million in the comparable period in 2021. Charter hire expenses increased $20.4 million primarily due to an increase in chartered-in days and increased $18.0 million due to an increase in charter hire rates due to improvement in the charter hire market. The total chartered-in days for the nine months ended September 30, 2022 and 2021 were 3,102 and 1,718, respectively.
The Company currently charters in five Ultramax vessels on a long-term basis as of the charter-in commencement date, with an outstanding option to extend the charter period on one of those vessels.
Depreciation and amortization
Depreciation and amortization expense for the three months ended September 30, 2022 and 2021 was $15.4 million and $13.6 million, respectively. Total depreciation and amortization expense for the three months ended September 30, 2022 includes $11.9 million of vessel and other fixed asset depreciation and $3.5 million relating to the amortization of deferred drydocking costs. Comparable amounts for the three months ended September 30, 2021 were $11.4 million of vessel and other fixed asset depreciation and $2.2 million of amortization of deferred drydocking costs. Depreciation and amortization increased $1.3 million due to the impact of thirteen drydocks completed since the third quarter of 2021 and increased $0.5 million due to an increase in the cost base of our owned fleet due to the capitalization of BWTS on our vessels and the acquisition of three vessels in the second half of 2021, offset in part by the sale of one vessel in the third quarter of 2022.
Depreciation and amortization expense for the nine months ended September 30, 2022 and 2021 was $45.2 million and $39.2 million, respectively. Total depreciation and amortization expense for the nine months ended September 30, 2022 includes $35.5 million of vessel and other fixed asset depreciation and $9.7 million relating to the amortization of deferred drydocking costs. Comparable amounts for the nine months ended September 30, 2021 were $33.0 million of vessel and other fixed asset depreciation and $6.2 million of amortization of deferred drydocking costs. Depreciation and amortization increased $3.5 million due to the impact of 13 drydocks completed since the third quarter of 2021 and increased $2.6 million due to an increase in the cost base of our owned fleet due to the acquisition of nine vessels in 2021 and the capitalization of BWTS on our vessels, offset in part by the sale of one vessel in the third quarter of 2021 and the sale of one vessel in the third quarter of 2022.
General and administrative expenses
General and administrative expenses for the three months ended September 30, 2022 and 2021 were $9.7 million and $7.9 million, respectively. General and administrative expenses include stock-based compensation of $1.4 million and $0.8 million for the three months ended September 30, 2022 and 2021, respectively. General and administrative expenses increased $0.7 million due to higher stock-based compensation expense and increased $0.5 million due to an increase in compensation and benefits.
General and administrative expenses for the nine months ended September 30, 2022 and 2021 were $29.6 million and $23.6 million, respectively. General and administrative expenses include stock-based compensation of $4.5 million and $2.2 million for the nine months ended September 30, 2022 and 2021, respectively. General and administrative expenses increased $2.3 million due to higher stock-based compensation expense, increased $1.7 million due to an increase in compensation and benefits, and increased $1.0 million due to higher professional fees.
Other operating expense
Other operating expense for the three months ended September 30, 2022 and 2021 was $2.5 million and $0.8 million, respectively. Other operating expense for the three months ended September 30, 2022 was primarily comprised of costs associated with a corporate transaction that did not materialize. Other operating expense for the three months ended September 30, 2021 was primarily comprised of costs incurred relating to a 2021 U.S. government investigation into an allegation that one of our vessels may have improperly disposed of ballast water that entered the engine room bilges during a repair. The Company posted a surety bond as security for any fines and penalties. Other operating expense consists of expenses incurred relating to this incident, which include legal fees, surety bond expenses, vessel offhire, crew changes and travel costs.
Other operating expense for the nine months ended September 30, 2022 and 2021 was $2.6 million and $2.3 million, respectively. Other operating expense for the nine months ended September 30, 2022 was primarily comprised of costs associated with a corporate transaction that did not materialize. Other operating expense for the nine months ended September 30, 2021 was primarily comprised of costs incurred relating to a 2021 U.S. government investigation into an allegation that one of our vessels may have improperly disposed of ballast water that entered the engine room bilges during a repair. The Company posted a surety bond as security for any fines and penalties. Other operating expense consists of expenses incurred relating to this incident, which include legal fees, surety bond expenses, vessel offhire, crew changes and travel costs.
Interest expense
Interest expense for the three months ended September 30, 2022 and 2021 was $4.2 million and $8.5 million, respectively. Interest expense decreased $1.4 million due to lower effective interest rates and decreased $1.4 million due to lower outstanding principal balances, each as a result of the refinancing of the Company’s debt in the fourth quarter of 2021 and decreased $1.4 million due to lower amortization of debt discounts and deferred financing costs primarily as a result of the Company’s adoption of ASU 2020-06.
Interest expense for the nine months ended September 30, 2022 and 2021 was $13.0 million and $25.6 million, respectively. Interest expense decreased $4.6 million due to lower outstanding principal balances and decreased $4.4 million due to lower effective interest rates, each as a result of the refinancing of the Company’s debt in the fourth quarter of 2021 and decreased $3.8 million due to lower amortization of debt discounts and deferred financing costs primarily as a result of the Company’s adoption of ASU 2020-06.
The Company entered into interest rate swaps in October 2021 to fix the interest rate exposure on the Global Ultraco Debt Facility term loan. As a result of these swaps, which average 87 basis points, the Company’s interest rate exposure is fully fixed insulating the Company from the rising interest rate environment.
Realized and unrealized (gain)/loss on derivative instruments, net
Realized and unrealized gain on derivative instruments, net for the three months ended September 30, 2022 was $11.3 million compared to a realized and unrealized loss on derivative instruments, net of $9.0 million for the three months ended September 30, 2021. The $11.3 million gain is primarily related to $14.3 million in gains earned on our freight forward agreements as a result of the decrease in charter hire rates during the third quarter, offset by $3.0 million in bunker swap losses for the three months ended September 30, 2022. For the three months ended September 30, 2021, the Company had $9.4 million in losses on our freight forward agreements due to the sharp increase in charter hire rates during the third quarter of 2021, offset by $0.4 million in bunker swap gains.
Realized and unrealized gain on derivative instruments, net for the nine months ended September 30, 2022 was $13.3 million compared to a realized and unrealized loss on derivative instruments, net of $45.6 million for the nine months ended September 30, 2021. The $13.3 million gain is primarily attributable to $9.4 million in gains earned on our freight forward agreements as a result of the decrease in charter hire rates during 2022 and $3.9 million in bunker swap gains for the nine months ended September 30, 2022. For the comparable period in the prior year, the Company had $47.9 million in losses on our freight forward agreements due to the sharp increase in charter hire rates in 2021, offset by $2.3 million in bunker swap gains.
The non-cash unrealized gains on forward freight agreements (“FFA”) for the remaining three months of 2022 as of September 30, 2022 amounted to $9.4 million based on 675 net days and the non-cash unrealized losses on FFAs for the calendar year 2023 amounted to less than $0.1 million on 135 net days.
The following table shows our open positions on FFAs as of September 30, 2022:
Net cash provided by operating activities for the nine months ended September 30, 2022 and 2021 was $242.5 million and $120.9 million, respectively. The increase in cash flows provided by operating activities resulted primarily from the increase in revenues due to higher charter hire rates.
Net cash provided by investing activities for the nine months ended September 30, 2022 was $4.1 million, compared to net cash used in investing activities of $106.8 million in the comparable period in 2021. During the nine months ended September 30, 2022, the Company received net proceeds of $14.9 million from the sale of a vessel and paid $5.7 million for the purchase of ballast water treatment systems (“BWTS”) on our fleet, $4.1 million as an advance for the purchase of a vessel to be delivered in the fourth quarter of 2022, $0.8 million for vessel improvements and $0.3 million for other fixed assets.
Net cash used in financing activities for the nine months ended September 30, 2022 was $135.2 million, compared to net cash provided by financing activities of $22.6 million in the comparable period in 2021. During the nine months ended September 30, 2022, the Company paid $81.6 million in dividends, repaid $37.4 million of the term loan under the Global Ultraco Debt Facility, paid $14.2 million to repurchase a portion of our Convertible Bond Debt and $2.4 million to settle net share equity awards.
As of September 30, 2022, our cash and cash equivalents including noncurrent restricted cash was $197.6 million compared to $86.2 million as of December 31, 2021.
In addition, as of September 30, 2022, we had $100.0 million in an undrawn revolver facility available under the Global Ultraco Debt Facility.
As of September 30, 2022, the Company’s outstanding debt of $354.3 million, which excludes debt discount and debt issuance costs, consisted of $250.2 million under the Global Ultraco Debt Facility and $104.1 million of Convertible Bond Debt.
During September 2022, the Company repurchased $10.0 million in aggregate principal amount of Convertible Bond Debt for $14.2 million in cash and cancelled the repurchased debt. The related amount of Convertible Bond Debt was not converted by the holders and no common shares were issued as a result of the repurchase transactions. The related amount of Convertible Bond Debt would have converted into 296,990 common shares (assuming the conversion occurred as of September 30, 2022). From time to time, the Company may, subject to market condition and other factors and to the extent permitted by law, opportunistically repurchase the Convertible Bond Debt in the open market or through privately negotiated transactions.
We continuously evaluate potential transactions that we believe will be accretive to earnings, enhance shareholder value or are in the best interests of the Company, including without limitation, business combinations, the acquisition of vessels or related businesses, repayment or refinancing of existing debt, the issuance of new securities, share and debt repurchases or other transactions.
Capital Expenditures and Drydocking
Our capital expenditures relate to the purchase of vessels and capital improvements to our vessels, which are expected to enhance the revenue earning capabilities and safety of the vessels.
In addition to acquisitions that we may undertake in future periods, the Company’s other major capital expenditures include funding the Company’s program of regularly scheduled drydocking necessary to comply with international shipping standards and environmental laws and regulations. Although the Company has some flexibility regarding the timing of its drydocking, the costs are relatively predictable. Management anticipates that vessels are to be drydocked every two and a half years for vessels older than 15 years and five years for vessels younger than 15 years. Funding of these requirements is anticipated to be met with cash from operations. We anticipate that this process of recertification will require us to reposition these vessels from a discharge port to shipyard facilities, which will reduce our available days and operating days during that period.
Drydocking costs incurred are deferred and amortized to expense on a straight-line basis over the period through the date of the next scheduled drydocking for those vessels. During the nine months ended September 30, 2022, eight of our vessels completed drydock and we incurred drydocking expenditures of $18.5 million. During the nine months ended September 30, 2021, six of our vessels completed drydock and we incurred drydocking expenditures of $10.7 million.
