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Edited Transcript of SALT earnings conference call or presentation 23-Oct-19 1:00pm GMT

Q3 2019 Scorpio Bulkers Inc Earnings Call

Monaco Oct 29, 2019 (Thomson StreetEvents) -- Edited Transcript of Scorpio Bulkers Inc earnings conference call or presentation Wednesday, October 23, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Cameron Mackey

Scorpio Bulkers Inc. - COO

* Emanuele A. Lauro

Scorpio Bulkers Inc. - Co-Founder, Chairman & CEO

* Hugh Baker

Scorpio Bulkers Inc. - CFO

* James Doyle

Scorpio Bulkers Inc. - Senior Financial Analyst

* Robert L. Bugbee

Scorpio Bulkers Inc. - Co-Founder, President & Director

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Conference Call Participants

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* Benjamin Joel Nolan

Stifel, Nicolaus & Company, Incorporated, Research Division - MD

* Christopher M. Snyder

Deutsche Bank AG, Research Division - Research Associate

* Gregory Robert Lewis

BTIG, LLC, Research Division - MD and Energy & Shipping Analyst

* Jonathan B. Chappell

Evercore ISI Institutional Equities, Research Division - Senior MD

* Liam Dalton Burke

B. Riley FBR, Inc., Research Division - Analyst

* Omar Nokta

Clarksons Platou Securities - Analyst

* Randall Giveans

Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping

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Presentation

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Operator [1]

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Hello and welcome to the Scorpio Bulkers Inc. Third Quarter 2019 Conference Call.

I would now like to turn the call over to Hugh Baker, Chief Financial Officer. Please go ahead, sir.

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Hugh Baker, Scorpio Bulkers Inc. - CFO [2]

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Thank you, operator. Thank you all for joining us today. On the call with me are Emanuele Lauro, our Chairman and Chief Executive Officer; Robert Bugbee, our President; Cameron Mackey, our Chief Operating Officer; and James Doyle, our Senior Financial Analyst.

Earlier today, we issued our third quarter earnings press release, which is available on our website. The information discussed on this call is based on information as of today, October 23, 2019, and may contain forward-looking statements that involve risks and uncertainty. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statement disclosure in the earnings press release we issued today as well as Scorpio Bulkers' SEC filings, which are available at www.scorpiobulkers.com and www.sec.gov.

Call participants are advised that the audio of this conference call is being broadcast live on the Internet and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations page of our website for approximately 14 days. As well as the call, there will be -- we have issued and uploaded a supplemental presentation, which is complementary to this earnings press release.

With that, I'd like to pass you on to Emanuele Lauro.

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Emanuele A. Lauro, Scorpio Bulkers Inc. - Co-Founder, Chairman & CEO [3]

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Thank you, Hugh. Welcome to all, and thanks for being with us today. The quarter has continued to show good progress within the company. We've continued our active balance sheet management, retiring debt and making opportunistic sales of tonnage where we saw opportunities. We believe this to be value enhancing to shareholders given the current share price.

Despite a challenging start to the year in dry-dock, the weakness in rates experienced in the first half of the year was reversed in the third quarter. This was due mainly to increased ton-mile due to Chinese buyers being forced to source agricultural commodities from Brazil and Argentina rather than the United States.

In addition, Brazilian miner Vale resumed its export program after a prolonged disruption from dam failures. These fronthaul voyages and a significant number of larger dry cargo vessels fitting scrubbers in Asia, constrained the supply side and pushed rates to recent highs.

We continued to execute on our significant scrubber retrofit programs ourselves whilst optimizing our balance sheet and liquidity. Importantly, and in our considered view, this is also the appropriate moment to share a significant part of the value creation from our opportunistic investment in STNG. We had thought carefully about how to do this. We hoped that many SALT shareholders will see the same upside in STNG that we continue to perceive, but we felt it was right to start returning a significant portion of the value creation to our shareholders.

I am confident that Scorpio Bulkers will continue to be relevant in the dry cargo space due to its strong market position, modern fleet and best-in-class operations.

Furthermore, as today's move demonstrates, we will continue to look for ways to share this return with our investors going forward.

Both the freight environment and regulatory changes have tested us at times in the past few years. But given our position in the market, I look forward with cautious confidence, cognizant that there is more to come.

With this, I'd like to turn the call back to Hugh Baker.

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Hugh Baker, Scorpio Bulkers Inc. - CFO [4]

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Thank you, Emanuele. I would like to refer you all to the supplemental presentation again, which has been uploaded with the earnings press release.

In the third quarter, the company made a net loss of $1.9 million, a loss per share of $0.03. This includes a gain and dividends totaling $1.6 million or $0.02 a share, primarily related to the STNG investment; a $200,000 reversal of write-down of assets related to the sale of SBI Cougar and SBI Puma; and the write-off of deferred financing costs of $0.5 million relating to the refinancing of existing debt.

Third quarter EBITDA was $26.1 million and cash flow from operations was $9.1 million.

During the quarter, our Ultramax vessels had time charter equivalent earnings of $11,824 per day, and our Kamsarmax vessels had time charter equivalent of $13,149 per day. Earnings in Q4 are improved from these levels with our Ultramax vessels earning $13,351 per day for 34% of the days to date, and our Kamsarmax vessels have earned $13,715 a day for 36% of days to date.

During the quarter, we completed the sale of SBI Puma and SBI Cougar for approximately $37.9 million in aggregate, generating $16 million of additional liquidity. During the quarter, we also closed all of our remaining scrubber financings and our scrubber finance program is now completed and our scrubber program is fully funded. Details of our scrubber program can be found in our earnings press release.

Furthermore, during the quarter, we are pleased to have redeemed all of our $73.6 million of outstanding 7.5% senior notes.

As of October 18, 2019, the company had $89.6 million in cash. We have no restricted cash, and all the cash is freely available. The company's Board of Directors declared a dividend of $0.02 a share on October 22, 2019.

Finally, in addition, as mentioned by Emanuele, the company is paying a special dividend of 1 million shares it owns in Scorpio Tankers which will be payable on December 13 to all shareholders of record on November 15. After the dividend, the company will own approximately 4.4 million shares in Scorpio Tankers.

With that, I'd like to open the call up to questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And our first question comes from the line of Omar Nokta with Clarksons Platou Securities.

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Omar Nokta, Clarksons Platou Securities - Analyst [2]

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Well, this thing, special dividend, is what I would say is a -- clearly a surprise, to put it lightly. And coming into the call, I was planning on asking how you viewed the position versus 3 months ago. Clearly, the dividend says something and obviously, we've heard Emanuele's comments, but curious to hear you speak about it a bit more. STNG shares are up 20% since the 2Q earnings call when you really last discussed this publicly.

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [3]

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Sure. Well, as we described on the 2Q conference call, it's a good place to start, we said that we were very confident of the fundamentals of the product market. And that we were -- we look forward to that playing out as we approach 2020. Now since that call, that confidence in the product market has only increased. And not only are the fundamentals improved, but the present earnings in that product market have really improved and is setting up for a very strong early recovery this winter. So in many ways, if we were disappointed at all at the moment, it would be that STNG is only up 20% in the last 3 months.

So the way we'd be viewing it going forward is that even if you maintain the same momentum related to the stock prices that -- there's no reason to think that the STNG stock can't be up 50% by the time SALT reports next. So that's why we're maintaining the lion's share, the great majority of the stock that we own in STNG.

Now at the same time, as Emanuele said, we think it's right thing to do, especially when we've been trading under NAV to share, to share in that gain that -- with our shareholders and with our shareholders who placed their trust in that original decision that the company made. And they deserve a reward for that, so that's what the dividend is there for.

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Omar Nokta, Clarksons Platou Securities - Analyst [4]

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Thanks, Robert. Clearly, it's worked out very well since the time of investment. You mentioned NAV and as we think about it today, regarding the fleet as it stands, you've sold a couple of Ultramaxes recently. You did a few -- a couple of Kamsarmaxes a couple of months ago as well. Just kind of thinking about it with the discount to NAV, should we be thinking more that we'll be seeing more vessel sales? How do you think about the fleet today?

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [5]

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I think that you -- we've got all of the options there. I mean we've so far, we started off beginning last year -- this time last year and through the winter, that the dry cargo market if you remember wasn't that strong in the first part of this year, lots of fears related to world trade, et cetera, et cetera, and the market was weak. And we sold vessels in order to ensure that we could keep the STNG trade on. Then, everyone was terrified that we would have to sell STNG shares in order to fund our balance sheet, and we sold vessels and continued to sell vessels through that period to better fund that.

In the last quarter, we sold vessels to create that flexibility that you're now seeing played out in paying back the dividend. We intend to maintain that flexibility. So it's a fairly -- not a difficult decision to sell vessels at NAV when you're trading below NAV in order to maintain liquidity in another trade that's going very much your way. We could easily repeat -- if we wanted to, we could repeat next quarter what we have done this quarter.

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Operator [6]

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And our next question comes from Amit Mehrotra with Deutsche Bank.

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Christopher M. Snyder, Deutsche Bank AG, Research Division - Research Associate [7]

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Chris on for Amit. So the first question is just following up on the STNG stock dividend. In the release, you characterized this as a one-time special dividend; however, you still have more than 80% of the STNG position remaining. So I guess what's the plan for the remaining 80%? Is it the expectation that this position will be wound down and distributed to SALT shareholders over the coming quarters?

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [8]

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But the expectation is what we've said. The expectation is, we expect to see significant gains in the STNG stock. And if you look what's happened last quarter that market -- lots of different ways of looking at this, and we're obviously not going to completely reveal that position, that's the beauty of a special dividend. So one way of looking at this is, in the last 3 months, is the first question I've said, the STNG stock has gone up about 20% and we've dividend it out just under 20% of the STNG stock. Now we will watch.

Now what happens, maybe the STNG stock goes up 50%, maybe it goes up 10%, maybe it goes up 20%, maybe it goes up 30%, we have a lot of different decisions we can take on this. But I think you've seen the clear evidence, the clear change that we've moved that balance sheet from a holding position into now wanting to share with the shareholders, the -- of which we're a substantial shareholder -- the gain in that position. I think the beauty of it is that most of the Scorpio Bulkers shareholders love STNG stock too. And I think people are absolutely thrilled to receive STNG stock as dividend; to some of them, it's better than cash.

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Christopher M. Snyder, Deutsche Bank AG, Research Division - Research Associate [9]

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Okay. Fair enough. So it sounds like the timing and the magnitude of the dividend -- the future, maybe stock dividends are highly flexible and very dependent on the STNG share price?

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [10]

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Yes. We have to keep everybody guessing.

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Christopher M. Snyder, Deutsche Bank AG, Research Division - Research Associate [11]

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Okay. Fair enough. And then next, turning over so scrubbers, so the spread for 2020 is looking to be around $250 per ton based on what we're looking at, at least. Can you maybe talk about, I guess, one, is this kind of the same spread you guys are seeing? And what kind of payback this equates to on the mid-size bulker fleet? And then just, what is your willingness and ability to lock in these economics in the derivative market?

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Cameron Mackey, Scorpio Bulkers Inc. - COO [12]

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So this is Cam speaking. The first part of your question, is it the same spread we're seeing? Well, the spread is the spread. I think you're talking about the differential between VLSFO and 3.5% HFO, is that correct?

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Christopher M. Snyder, Deutsche Bank AG, Research Division - Research Associate [13]

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Yes.

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Cameron Mackey, Scorpio Bulkers Inc. - COO [14]

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So it really does depend whether one wants to use that differential or the differential between HFO and MGO, which obviously is somewhat higher. And the reason one would use that is: a, the availability and specification of VLSFO is still very much in question. But be that is it may, it's another $50 to $100. So we would argue that spread is somewhere depending on what method you want to use, between $250 and $350.

As we've said in the past, we don't think enough attention is being given to the overhang of excess HFO going forward. While the global slate of crude will lighten for the world's refiners, there still will be much excess HFO, and we think the clearing price for that 3.5% HFO will be lower for longer than the market is currently pricing.

Irrespective, to the second part of your question, the returns from medium-sized bulk carriers for a $250 spread, your IRR is somewhere between 30% and 70% or 80%, depending on other assumptions you use about consumption per day, time at sea versus time at port, speed, these sorts of things. So that type of IRR, I think, still justifies, on almost any basis, the marginal capital that is being put in, and the off-hire time that's being put in to fit the scrubbers on the vessels.

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Christopher M. Snyder, Deutsche Bank AG, Research Division - Research Associate [15]

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And then maybe just real quick on, is there any willingness or ability to lock in some of these economics in the derivative market? Or is it just that you guys think that the high sulfur price is going considerably lower, so you kind of want to wait that out?

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Cameron Mackey, Scorpio Bulkers Inc. - COO [16]

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There is certainly ability. There is active derivatives market that would allow us to lock it in. As a separate matter what we are doing is making sure that physical availability is there. So we do have contracts in place to secure our fuel on a floating price basis. So the actual physical availability is not in question. The price, we have decided for the time being, not to lock in.

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Operator [17]

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Your next question comes from the line of Jon Chappell with Evercore.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [18]

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Quick follow-up on the dividend. Just off the top of my head and using the shareholder registry, it looks like 3 of the SALT shareholders are pretty significant shareholders of STNG as well. Do you have any numbers as to what the overlap is in the shareholder base as we think about desire or willingness to hold the STNG shares that you've given as a dividend?

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [19]

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Sure. If you put insiders?

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [20]

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Yes, I was counting insiders.

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [21]

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The insiders and then the next top 2, you're already close to 60%.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [22]

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Great.

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [23]

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And then there are others that are smaller, but you can see on -- all you need to do is take Bloomberg and just cross reference it, they file it. There have been some people who've overlapped and bought STNG, SALT recently, that did own STNG, I don't think would have yet be showing up as a derivate to STNG too. But I would guesstimate -- and I'm certain that the overlap is at least 55% -- but I would guesstimate that it is as high as 70%, at least.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [24]

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The other theme I wanted to talk about a little bit was a bit noticeable that the off-hire days schedule that you've been pretty transparent with since the scrubber initiative was announced was not provided in this earnings release and we've heard a lot, kind of, anecdotally about delays and whatnot. Where do you stand right now with off-hire time associated with the scrubber retrofitting, number of days per ship? And has the schedule changed at all, any pushback into 2020 from what you'd expected to have been done by the start of next year?

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Cameron Mackey, Scorpio Bulkers Inc. - COO [25]

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Thanks, Jon. So our vessels are taking somewhere between 35 and 45 days to fit scrubbers, which is somewhere between 5 and 15 days longer than what we are targeting. The good news is that we feel these delays are -- in our case, these delays are going to come down because we're using the same yards and the same manufacturers, the scrubbers and the same design engineers and the same process to outfit ship after ship. So it's purely on the basis of repetition and familiarity, we feel the time to out -- to fit the scrubbers should reduce.

As a completely separate matter, delays that are being reported in China can come from a myriad causes. Many of the delays are happening on the larger vessels because that's where you get the most critical constraint of shipbuilding or ship repair capacity. So think about the 20,000 TEU container ships, the Valemaxes, the VLCCs, all competing for rather limited space. That's one bottleneck. Another bottleneck is purely the supply chain of the equipment and the parts coming from the scrubber manufacturers. And another bottleneck is the pre-retrofitting design and engineering work that has to be done.

So there are many different reasons why people are experiencing delays. We can only speak to our experience. And again, because we're sort of targeting smaller repair facilities with our vessels, we don't see the type of extensive or prolonged delays that some of the larger ships are seeing.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [26]

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That makes sense, Cam. So the number of ships, we just assume that based on the last schedule we've seen, the number of ships per quarter hasn't changed. We should just maybe raise the number of days per ship by somewhere between 5 and 15?

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Cameron Mackey, Scorpio Bulkers Inc. - COO [27]

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Yes, I think that's conservative. One other point I would make is that on the margin, you'll see a vessel or two slip from 1 quarter into the next. That's simply not on the basis of delays, but that's on their trading patterns, time in port or extra options that we give a charterer. So that's just -- is a delay not because of the outfitting but rather prolonged trading of the vessel before they go to dry-dock. So that's the basis, you might see some of the schedule slip of a few weeks or take one ship from this quarter into the next.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [28]

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That makes sense. The one last thing I wanted to ask, Cam, is the ability to kind of adapt these scrubber contracts. And once again, anecdotally, in the tanker market, market takes off, people maybe want to just [re-train] their ship as opposed to meeting their scrubber retrofit date. I don't necessarily think that's going to happen in the dry bulk market. But if that were to be the case, what's your flexibility on pushing back your slot, as it were, to take advantage of maybe an opportunity to trade the ship and make more in the very near term?

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Cameron Mackey, Scorpio Bulkers Inc. - COO [29]

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So the answer is, it depends. So in our case, the entire Scorpio group has booked out a lot of slots at very few shipyards, shipyards we have done due diligence with over the last 2, 3 years. As a reminder, we have a number of these ships that were going in for a special survey, anyway. So your greatest luxury is having a long lead time to develop relationships and seek your contracts with the yards where you are a large "strategic" customer with repeat business. So in our case, we have a lot of built-in flexibility to move around the schedule if we want. In fact, we're doing it now on some of the tanker vessels because the market has gotten so constructive.

Now with others, if you are a single shipowner with one Aframax or one VLCC, well if you miss your slot, the yard has better things to do. So it's a different decision depending on what type of owner and what type of scale you are -- scale benefit you're preventing -- presenting to the shipyard.

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Operator [30]

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And our next question comes from the line of Randy Giveans with Jefferies.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [31]

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So just looking kind of on a general market strength, clearly increasing iron ore fixtures from Brazil to China, certainly boosting the Capesize market throughout 3Q and now even into the fourth quarter. That said, can you point to any specific commodities or regions that are providing most of the strength for your Kamsarmaxes and Ultramaxes?

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James Doyle, Scorpio Bulkers Inc. - Senior Financial Analyst [32]

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Randy, it's James. Some particular interesting developments have been the increase in corn exports from Latin America. It's partially offsetting U.S. exports, but this is an increase in ton-miles. It has to do with price. Another interesting development or, I guess, surprise is that China is actually up 8% on coal imports this year. So that's been strong.

And then we've been seeing some developments on some of the minor bulk (technical difficulty) catch the headlines, you see increased cement production in Vietnam. That's going to China, as China tries to reduce its pollution, where you might see areas in which they try to import certain commodities that they don't want to have a negative impact on pollution.

And then obviously, as you mentioned, we have seen the positive resumption of iron ore exports from Brazil, and we've seen some larger vessels and midsized vessels off-hired for dry-dock and scrubber installation.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [33]

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Perfect. And then switching gears to share repurchases, on the last call, you mentioned the sale of the Ultramaxes were, I guess, quoting, "Opportunistic and one way to close the gap between NAV and the stock price." That said, there were no share repurchases in the third quarter, so what is the strategy for share repurchases going forward?

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [34]

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At the moment, we have chosen to -- while the actual position has been stable in terms of earnings in the first half because you've [been seeing us] to deal with that balance sheet and get it pretty strong for we're doing at the moment. So you also saw that we repaid down our baby bond in the last quarter too. And we'll see whether or not this dislocation is persistent now that we're starting to, let's say, return some of the gains that we've created in the STNG position itself. So we'll watch and see whether or not the -- as I say, that balance sheet now is pretty flexible to do a lot of different things. And we'll watch and see what happens related to the gap between NAV and stock price.

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Randall Giveans, Jefferies LLC, Research Division - VP,Senior Analyst & Group Head of Energy Maritime Shipping [35]

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Okay. And then 10-second question, how many scrubbers have been installed as of today?

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Hugh Baker, Scorpio Bulkers Inc. - CFO [36]

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Randy, 4 vessels have had their scrubbers installed, 3 Kamsarmaxes and 1 Ultramax. We have a similar number in the (technical difficulty) right now.

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Operator [37]

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And our next question from the line of Greg Lewis with BTIG.

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Gregory Robert Lewis, BTIG, LLC, Research Division - MD and Energy & Shipping Analyst [38]

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I guess I wanted to a little bit -- talk a little bit about the balance sheet. So last couple of years challenging to say the least. You guys spend a lot -- increased liquidity, you relied heavily on the sale and leaseback market. Now it looks like the cycle is kind of entered a kind of cyclical upswing.

As we think about that, I'm curious to hear your thoughts around taking vessels that have been put on sale/leaseback over the last couple of years and shifting those back maybe to some cheaper financing. And in just thinking about that, if we look out over the next 12 months, are there opportunities to do that? If you kind of put some color around that, that will be super helpful.

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Hugh Baker, Scorpio Bulkers Inc. - CFO [39]

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Greg, I mean, I think the first thing to say is that we obviously manage our balance sheet very actively. And one of the things we've done in the third quarter, which I think is very significant, is to repay $73 million of baby bonds. Now that was a very flexible finance at the time, but it was 7.5% coupon, and it was our -- by far, our most expensive piece of debt.

The sale and leasebacks we announced earlier this year were surprisingly competitive on price. One was priced at LIBOR plus 2.90%. The other is priced at, I think, LIBOR plus 3.40%. So what we're seeing is sale and leasebacks for the right borrowers are actually much more similar to bank debt than they used to be and they've become much more flexible. So we're not looking at sale and leasebacks in the way that we used to. We see them as much, much better and more attractive instruments.

Now that said, you're absolutely correct that plain vanilla bank debt is cheaper. And as the company develops through 2020 and into 2021, we do expect to look at our more expensive debt. And our more expensive debt is our highest advance rate debt, and we look at it as part of the deleveraging, we could easily -- it could easily become attractive to address some of the sale/leasebacks.

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Operator [40]

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And our next question comes from the line of Ben Nolan with Stifel.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [41]

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I had a question about sort of how to think about the scrubbers in the context of the pools. Obviously, the pools probably contain, especially initially ships that both have scrubbers and those that don't. How do you come up with the math of deciding here is -- given sort of an unknown spread in fuel prices, here is how much extra a scrubber ship should be contributing to the pool or how much the owner of that scrubber ship should be able to take out relative to one that wouldn't have a scrubber?

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Cameron Mackey, Scorpio Bulkers Inc. - COO [42]

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Thank you for that question, Ben. It's based on actuals. So there is an estimate that looks forward and then there is a true-up at the end of every, say, relevant period to reflect actuals.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [43]

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I see. So it's not just some sort of a pool point allocation. This is real math, I guess, right?

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Cameron Mackey, Scorpio Bulkers Inc. - COO [44]

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It is essentially real math. Pool points work much the same way. A pool point is basically an approximation or a system of approximation, something like golfer's handicap, right? And then the actual score determines the relevant payouts to each owner or each participating vessel.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [45]

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Okay. Yes, that's helpful. I appreciate that, Cam. And then the other thing is just looking at the rates that you have booked in the fourth quarter, at least relative to maybe some of the indexes that we see, a little bit lower particularly on the Kamsarmaxes than at least what I was looking for. Is there something around that relative to, I don't know, positioning or scrubbers or something that you would call out?

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Cameron Mackey, Scorpio Bulkers Inc. - COO [46]

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No. Thank you, Ben. It's actually both. So there were a couple of vessels that were positioning East to West with longer than, say, expected ballasting legs. And what was pronounced during the quarter was quite a large differential between rates that you could achieve in the Western Hemisphere and those you could achieve in the East. So as our vessels start to position to dry-dock in Asia, if they are little early and they're trading around Asia, of course, they're experiencing that discount, right, in rates.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [47]

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Right, right.

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Cameron Mackey, Scorpio Bulkers Inc. - COO [48]

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So that largely explains the broad TCE numbers that you see there.

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Operator [49]

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And our last question comes from the line of Liam Burke with B. Riley FBR.

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Liam Dalton Burke, B. Riley FBR, Inc., Research Division - Analyst [50]

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You discussed based on your NAV, your strategy of managing through your fleet. Is there any particular bias either on the buyer or the add or the subtract side on which type of vessel that you would manage through?

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Cameron Mackey, Scorpio Bulkers Inc. - COO [51]

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I tend to think it's just about values. The S&P market, sale and purchase market, is active, but I wouldn't call it liquid. It's a variety of different participants with a variety of different biases. And so it's whatever presents the best value at the time.

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Liam Dalton Burke, B. Riley FBR, Inc., Research Division - Analyst [52]

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And on the commodity front, if you're looking at a potential trade truce between China and the U.S., how does that change your outlook for the -- going forward for the next 12 months or so?

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Cameron Mackey, Scorpio Bulkers Inc. - COO [53]

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Well, obviously, it's positive. You'd expect a couple of things. One is, disruption in supply chains and rerouting of vessels generally is good for the supply-demand balance, right? So as vessels were rerouted from the U.S. to South America, for example, for agricultural commodities, you see a corresponding expansion of ton-miles, and freight is therefore supportive or constructive.

When you unwind that, you're going to see 2 things. A short-term increase, because everything again has to be rerouted and rearranged. And then you're going to get, even though the net result will be somewhat reduced ton-miles, you're going to get corresponding increase in volumes. So again, longer term, of course, more trade is better, and better trade relationships are better. In the short term, you'd expect to see some disruption, positive, negative, sort of netting off to where we are now, which is generally a pretty okay market.

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [54]

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Just to end this, I mean, the simpler (inaudible) generally anything that promotes world trade growth is good.

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Liam Dalton Burke, B. Riley FBR, Inc., Research Division - Analyst [55]

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Right. So, I mean, effectively, I mean, the market has been pretty stable and pretty good. I guess the question was looking past the current market, a trade truce over the long-term would be a positive for you, make things even better?

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [56]

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Yes. But I think, as you've seen, we're managing the company on the basis that we're not relying on that. We've created a strategy where Scorpio Bulkers is the best-performing dry bulk stock over the last 12 months, where we're not dependent upon the trade position. So our default position, until further notice, is that there is no trade truce. Because if we know we can create value and make cash flow in whatever way during that period, then if there is a trade truce as opposed to status quo at the moment, then that will be great.

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Operator [57]

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Thank you. And this concludes today's question-and-answer session. I would like to turn the call back to Hugh Baker, Chief Financial Officer, for any further remarks.

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Hugh Baker, Scorpio Bulkers Inc. - CFO [58]

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Thank you, operator. We have no further remarks. Thank you all for participating in the call.

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Operator [59]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.