Star Bulk Carriers Corp. (SBLK) Q3 2012 Earnings Report, Transcript and Summary

Thank you for standing by, ladies and gentlemen, and welcome to the Star Bulk conference call on the third quarter 2012 financial results. We have with us Mr. Spyros Capralos, President and Chief Executive Officer, and Mr. Simos Spyrou, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today, Friday, November 30, 2012. We now pass the floor to one of your speakers today, Mr. Spyros Capralos. Please go ahead, sir.

Thank you, Operator. I'm Spyros Capralos, President and Chief Executive Officer of Star Bulk Carriers and I would like to welcome you all to the Star Bulk Carriers third quarter and nine months 2012 financial results conference call. Along with me today to discuss our financial results is our CFO, Mr. Simos Spyrou. Before we begin, I kindly ask you to take a moment to read the Safe Harbor statement on slide number 2 of our presentation. While you read it, I will take the opportunity to talk about some important highlights of this quarter's results. First of all, I would like to underline that the $303.2 million of impairment loss you will see on our third quarter earnings results press release is a non-cash item. Our standard procedure whenever the current fair market value of an asset, in our case a vessel, is materially lower than its book value, it needs to be tested for impairments according to US GAAP. Due to depressed market expectations for future REIDs and the low probability of a recurrence of the extreme highs of 2007 and 2008, the testing methodology we used determined that the book values of the total fleet of our super max vessels plus our oldest cape size vessel were not recoverable as of September 30, 2012 and, thus, a non-cash impairment loss of $303 million was recognized. We believe that our current book values following the impairment provide a better estimation of the current market values of our assets and, thus, our financial statements are more accurate and consistent with current market conditions. Our view is that the enhanced accuracy of our balance sheet is to the benefit of our shareholders as it reflects in a more appropriate and transparent manner Star Bulk's asset and equity value. While this…

Thank you, Spyros. Let us now move to Slide 10 for an overview of our balance sheet as of September 30, 2012. Our total cash balance stood at $39.4 million. Other current assets were at $13.4 million and our fixed assets following the impairment amounted to $295.5 million. Fair value of the above market acquired time charter stood at $15.9 million and other non-current assets at $1.4 million. Summing up the above, total assets amounted to $365.6 million. Total debt stood at $234.1 million. Other liabilities were $13.4 million and stockholder's equity was $118.1 million. If we can now turn to Slide 11 to discuss our third quarter 2012 income statement, I would like to point out that our results include non-cash items, which are depicted in the middle column while the adjusted figures exclude them. For the third quarter of 2012, non-cash adjusted revenues amounted to $20 million compared to $27 million in the same period last year. In particular, non-cash items include $1.6 million related to the amortization of above market acquired time charters. Voyage expenses amounted to $3.4 million for the third quarter 2012 from $5.9 million in the third quarter of 2011. Adjusted revenues, net of voyage expenses, amounted to $16.6 million this quarter compared to $21.1 million the same period last year, a reduction of 21%. I believe that this number is the best measure of our actual revenue as it nets out the effect of the voyage charters on the revenue and the voyage expenses lines. This 21% reduction was mainly due to the off hire related to the (Star Polaris) and the lower freight rate environment combined with our higher spot market exposure. Vessel operating expenses stood at $6.3 million versus $6.5 million last year despite our fleet growth. It is worth nothing…

Thank you, Simos. In conclusion, as you can see on Slide 18, we believe that Star Bulk is positioned to weather the storm through the current challenging environment. On top of our high quality modern fleet, Star Bulk also has a diverse group of high quality charters. Our in-house management has provided tangible results as it has led to a meaningful increase in our efficiency and transparency, a consistent decrease in our operating costs and, lastly, in an increase in our revenues going forward due to the management of third party vessels. We have an experienced and dedicated management team and moderately leveraged balance sheet and a healthy liquidity profile compared to the industry. We currently have no capital expenditures related to new buildings and we have $32.2 million of cash in the banks. From a commercially operational perspective, our cape size fleet is mostly covered for the next two years and at above market charter levels while our operating expenses are being continuously optimized. Finally, I would like to thank our shareholders for their support and loyalty and reassure them that we'll do everything in our power to ensure the company's long-term viability and navigate safely through the challenging low freight rate environment. Without taking any more of your time, I will now pass the floor over to the operator. In case you have any questions, both Simos and myself will be happy to answer them.

(Operator Instructions) Your first question comes from the line of Natasha Boyden – Global Hunter. Natasha Boyden – Global Hunter: There's a couple of things on the dividend side. If I recall correctly, last quarter on the earnings call you were asked about potentially cutting the dividend and you seemed sternly adamant that cutting the dividend was not going to happen because that's what your shareholders were looking for. I'm just curious -- obviously realizing that we're in a very weak freight environment and that cash is kind -- what your thinking was behind the cancellation of the dividend.

It's things are changing. The environment has deteriorated further. And as we said in our presentation, we have been actively and proactively discussing with the banks to find and to get waivers for some of the covenants that we are missing on our loans and, therefore, we do not like while we have discussions with the banks to continue paying dividends while the cash flow of our operations did not permit us to pay that dividend Natasha Boyden – Global Hunter: So given what you said about you discussions with the banks and obviously keeping cash on the balance sheet, your NAV, your stock trades at a very steep discount NAV, which you correctly pointed out. Are you at all considering share buybacks after the bank amendments are secured in order to provide a chance to equity holders or will you just play it safe and keep cash on the balance sheet?

As we said, at this point we are trying to preserve cash; therefore, we are not using the mechanism that we have in place. But we are not going to use it at least in the short term to buy back shares. Natasha Boyden – Global Hunter: Moving on to an entirely different topic here, you've obviously done a great job in lowering your (inaudible) and it continues to come down. How much more savings can you realize here or is this about as low as it can go?

We think that we're doing a good job. There is always possibility to improve further our efficiencies, especially now that we are getting additional vessels under management and we grow further the fleet. That will give us possibilities to achieve further synergies in economies of scale and that will permit us to bring down further losses – the costs. Natasha Boyden – Global Hunter: So the last question, can you just tell us what specific covenants that you are in violation of and were they triggered by the impairment loss?

Yes, but I will have Simos to explain more on this.

Mainly the covenants that are not met are security covers and the leverage ratios. They are not affected by the impairment loss and all of these covenants are market adjusted, as you know. So basically it's – the effect is due to the drop of the asset values from the second quarter to the third quarter this year.

(Operator Instructions) There are no further questions at this time, sir. Please continue.

Thank you all for taking the time to join us today for our earnings conference call. Our 2012 fourth quarter results are scheduled for February next year. Thank you very much and have a good weekend. Bye-bye.

Thank you. That does conclude our conference for today. Thank you all for participating. You may now disconnect.