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Edited Transcript of SALT earnings conference call or presentation 22-Jul-19 1:00pm GMT

Q2 2019 Scorpio Bulkers Inc Earnings Call

Monaco Jul 24, 2019 (Thomson StreetEvents) -- Edited Transcript of Scorpio Bulkers Inc earnings conference call or presentation Monday, July 22, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Emanuele A. Lauro

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

* Hugh Baker

Scorpio Bulkers Inc. - CFO

* Robert L. Bugbee

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

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Conference Call Participants

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* Amit Singh Mehrotra

Deutsche Bank AG, Research Division - Director and Senior Research Analyst

* Benjamin Joel Nolan

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

* Gregory Robert Lewis

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

* Jonathan B. Chappell

Evercore ISI Institutional Equities, Research Division - Senior MD

* Randall Giveans

Jefferies LLC, Research Division - Equity Analyst

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Presentation

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Operator [1]

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Hello, and welcome to the Scorpio Bulkers Inc. Second 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. Welcome to the Scorpio Bulkers second quarter earnings conference call. On the call with me today are Emanuele Lauro, our Chairman and Chief Executive Officer; Robert Bugbee, our President; and Cameron Mackey, our Chief Operating Officer.

Earlier today, we issued our second quarter earnings press release, which is available on our website. Also available on our website would be a short presentation with slides. Slides are available on the Investor Relations page of the website under Reports & Presentations.

The information discussed on this call is based on information as of today, July 22, 2019, and may contain forward-looking statements that involve risk 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 that we issued today as well as Scorpio Bulkers' SEC filings, which are available at www.scorpiobulkers.com and also 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.

If you have any specific financial modeling questions, you can contact me later and we can discuss these off-line.

Now I'd like to introduce Emanuele Lauro.

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

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Thanks, Hugh, and good morning or afternoon to all on the call. The second quarter has been a good quarter of progression for the business. It is recognized that there has been turbulence and macroeconomic noise through the quarter. However, this new flow masked some important positive trends. We observed monthly sequential increases in Chinese deal exports, a strong South American grain season and increased Indonesian coal export matched with rapidly growing Indian coal imports. All of these factors have contributed to building a very strong third quarter rate environment as we are experiencing it now.

Looking into the second half, there remains potential for some amelioration in the trade wars and the gradual normalization of Brazilian iron ore exports. Initial signs of record Russian and Ukrainian grain harvest are also encouraging.

In the quarter, we continued to actively manage the fleet with selective disposals to create value and liquidity. We were able to retire senior unsecured financing and undertook selective sale and leasebacks at attractive rates. Our scrubber retrofit program is ongoing, and we now have 37 vessels contracted with additional options available.

Earlier in the year, we were pleased to have taken time charter coverage through some of the most challenging periods in the market. This cover rolled off through the second quarter and the fleet is repositioned to benefit from stronger spot market, which we have anticipated in the second half of this year. We have also looked to time chartering some vessels on rates which look attractive.

In addition, it’s interesting to note that the order book for midsized vessels is at the second-lowest level since 1996 against the backdrop of a rapidly aging fleet.

As such, looking ahead through the next 12 months, it is pleasing to see how SALT is positioned. We have a modern, efficient and substantially scrubber-equipped fleet. We have value-creating investment in STNG, Scorpio Tankers, which is a significant source of value for our shareholders. Our balance sheet is robust with sensible financial leverage and $160 million of liquidity in cash and equivalents.

Finally, our outlook and earning trajectory is positive, fully repositioned in the strengthening spot market.

With that, my remarks are over, and I will hand the call back to Hugh Baker.

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

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Thank you, Emanuele. Let me say that during the second quarter, the company's net income was $35 million. This included a gain in dividend from the investment in Scorpio Tankers of approximately $53.1 million and also included a write-down of assets held for sale of $5.2 million and a write-down of deferred financing costs of $2.7 million.

Total vessel revenues for the second quarter were $49.1 million and EBITDA was $65.2 million. When reflected in time charter equivalent, or TCE, terms, our Ultramax fleet earned $8,993 per day in the second quarter and our Kamsarmax fleet earned $10,830 per day during the third quarter to date, our Ultramaxes have earned $9,603 per day for 42% of our days, and our Kamsarmax fleet has earned $12,656, also for 42% of days.

Our cash position at July the 19th was $160 million. We have no restricted cash, and all of this cash is freely available to the company.

We completed -- during the quarter, we completed the sale of SBI Electra and SBI Flamenco for approximately $48 million. We've made the decision to sell 2 Ultramax vessels, which are now classified as held for sale.

During the quarter, we incurred CapEx of $1.4 million for exhaust gas cleaning systems, or scrubbers, and total capital expenditure to date on scrubbers amounts to $8.7 million. Details of our scrubber CapEx are included in the earnings press release and earnings presentation.

I can also announce that we time chartered in 4 Kamsarmax vessels. Details of these charters are provided in our earnings press release.

We also closed -- we've also closed the previously announced sale and leaseback of 16 vessels for a total of $143.5 million in additional liquidity, including scrubber financing. All of the previously announced sale leasebacks have now been closed and executed.

In addition, all of the previously announced loan upsizings relating to our scrubber program have also been approved and are in various stages of execution, and all are expected to be closed in the third quarter of 2019.

Recently, we issued a notice of redemption for all of our $73.6 million of outstanding senior notes

(technical difficulty)

to be repaid in the first week of August.

Finally, I can mention that no shares were purchased during the quarter and since the end of the quarter, and that the company's Board of Directors has declared a dividend of $0.02 a share as of July 22, 2019.

With that, I'll 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) Our first question comes from the line of Greg Lewis with BTIG.

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Gregory Robert Lewis, BTIG, LLC, Research Division - MD and Energy & Shipping Analyst [2]

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I guess my first question is related to the current market. We've seen a nice uptick here over the last 4 weeks. Really, what I'm curious is you have your existing cash position, yet you have some debt due in this -- in the Q3 quarter. How should we be thinking about how you're viewing in terms of a minimum liquidity that you kind of want to have on your balance sheet? And how we could be thinking about potential uses of cash if the market that we're in now continues going for the next couple of quarters?

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

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Okay. That's a good question. I mean, well, first of all, the rates are present. I mean they're all over the Baltic Index and Bloomberg, et cetera. But the rates at present are significantly higher than those that we've have had traded bookings for the start of the quarter. So Kamsarmaxes are in excess of 17 and Ultramax is in excess of 12.5, and the market is moving upwards. We're also moving into what is normally the stronger period for dry cargo, which lasts through till the beginning of the following year, the beginning of January pre-Chinese New Year. So yes, we're expecting a period of strong, positive cash flow.

At the same time, what we're doing is we are continuing to look at selling a couple of ships where we're seeing pretty strong pricing relative -- especially strong pricing relative to our existing NAV. And on the basis that our stock is, our existing NAV must be somewhere between $9.50 and $10 right now and it is rising because you've now got strong cash generation and you've got S&P values going upwards.

So we are placing ourselves into a position where the balance sheet -- first part of the year was securing the balance sheet, securing we can keep our investments on. We felt very strongly, as we do now, that Scorpio Tankers is a very good investment and probably the best play there is in IMO 2020 and that hasn't even begun to play out properly yet. The second part of the year, or this last part, was to add that and now we're pressing. Now we're raising further liquidity by a couple of sales, which actually means that you have to read between the lines or I'll make it clear if you want that independent of whatever we are doing in -- going to do in Scorpio Tankers, so keeping Scorpio Tankers right now is what we're doing because we believe in that upside, we have the ability to start closing that gap between where the stock is trading and our net asset value.

But I don't want to be -- we don't want to be tied to an exact number on what we think we need for cash for minimum liquidity. I mean, contractually, the lenders -- our covenants say we must at all times have a minimum of $35 million of cash. So that is an absolute...

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Gregory Robert Lewis, BTIG, LLC, Research Division - MD and Energy & Shipping Analyst [4]

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Okay. Great. And then I guess you kind of touched on STNG, but -- and then just one more for me. Just as we think about -- I guess you chartered in these 4 Kamsarmaxes. Looking like they were on spot plus some sort of spread for the Kamsarmax/Panamax. You fixed one. I guess what I would say is, I mean, what was the thought process in chartering in these vessels at sort of a tied to spot rate instead of chartering like a fixed rate?

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

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Yes. Sure. But in your -- it's relative to the index you're getting, and it allows -- and depending on what you're doing with paper on the other side, you can turn what is your -- what is a floating position into a fixed-rate position and you can also take an arbitrage. I think one of the ships has already -- since being taken in, we've already been able to fix that out at a spread position whilst taking options. But in general, if you look at the entire fleet, the entire fleet is basically a spot fleet. And as I've said, inside of this -- inside of how you're doing it, just because the ship itself is taken in on a floating rate doesn't mean you can't create further length through what you do on a matching paper contract.

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Operator [6]

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Our next question comes from the line of Amit Mehrotra with Deutsche Bank.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [7]

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I just wanted to add -- maybe start with the investment in STNG. Obviously -- it's obviously been a home run investment. I would say it benefited both SALT and STNG shareholders. But to be fair, we haven't really seen the benefits as clearly for SALT shareholders, at least in tangible terms, even though the stake now represents, call it, around 20% of the company's net asset value. So I just want to ask how do you think about the STNG stake solely from the standpoint of SALT shareholders because we have not seen it -- commensurate increase in the STNG stake has not corresponded to any real material increase in SALT's equity value.

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

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Yes. Well, it's hard to work out for the stock that's up more than 50% in the last sort of 2 months whether you've actually seen any benefit to the STNG investment or not, I would argue with you there. But I think to take your analogy, and I'm on dodgy ground being English talking about baseball, but you brought it up and you said that STNG is a home run. I would say STNG's not quite a home run yet. I would say that STNG is on base. All we've done is hit a single and we got to first, and maybe we're starting -- maybe we're crossing to second right now. But that market is right on the cusp of beginning the IMO 2020 positions, which STNG is better placed than, I think, virtually any other company there is in the world to benefit from that. And I think that it's important to -- well, I think it's important to run that one out and to see, and it's a question of time. I don't think it's a feasible thing to do to -- I think a lot of what you've written about is theory. You're right that there's a massive discount to NAV, I opened the call with that. I mean I invested myself more in SALT because I think that you're in an up cycle and you've got a great disconnect with NAV and the market is going positive, et cetera. But with regard to the idea of selling STNG and buying SALT, so you have to announce that you've sold STNG for $160 million, $170 million and then try and buy the equivalent amount in SALT. Well, I don't think that one works at the pricing. And I was very clear with the first caller that we are able to do things in SALT now. We have moved SALT into a position where we are able to do things in SALT and narrow the NAV gap that is independent of whatever we do with STNG.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [9]

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Yes. But you've had -- I mean listen -- well, I mean I'm not going to -- I don't want to get into a robust philosophical debate on a public call, but...

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

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No, no, no. We don't need -- Amit, we don't -- this is the same rerun of the conversation we all had in -- when was it? I think we've had this conversation 3 times now. We -- maybe not with you, but generally with analysts.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [11]

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You guys have had an uplift.

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [12]

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It was February, what are you doing? It was April, May...

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [13]

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Hold on a second.

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [14]

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Our stock is at $23. Now the stock is at $28. I mean we think the STNG stock is going to move up over the next period.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [15]

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But you've never -- Hugh said -- Hugh mentioned earlier that you haven't bought back 1 share of SALT shares. Wouldn't you -- I mean the SALT stock has moved up with market, you guys have proactively not done anything to proactively capture the dislocation. And the question I have is that when you talk about...

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [16]

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I would say we have. What we've done is we've been able to hold that as it moved up 40%, 50% in the quarter in terms of real assets. You've got to understand, you can't -- it's theoretical what you're talking about. You cannot go and sell $160 million of STNG and go and buy $160 million of stock in SALT at $6.0, $6.10 or at $4.58. My personal -- when I bought stock personally in SALT, I moved the market $0.20 in the 2 days that I was trying to buy it, and that wasn't anywhere near $160 million.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [17]

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I'll move on. But -- clearly, I understand that dynamic, but I'll move on. Let me just ask Hugh about the bookings to date. It's frankly a bit underwhelming given the recent inflection in the spot rates that you guys mentioned. So how should we just think about modeling out the queue relative to what you disclosed? I mean should we look at the spot rate as a good indicator? Or maybe are there more hire -- off-hire days that we should think about?

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [18]

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Okay. So the bookings -- I'll answer the first bit. So the bookings to date are underwhelming on the basis that bookings to date largely, obviously, reflect that's where the markets was weeks ago. And the market weeks ago, you can see in the second quarter earnings, was substantial -- was lower than what we are doing now. So we're showing in pure math that let's say in the last 2 or 3 weeks prior to the market moving up really strongly in the last week that we were probably fixing around 14-ish or 15 on the Kamsars and we were fixing, wherever it was, 10, 11 on the Ultramaxes. And in dry cargo, you almost have this immediate response. So your present bookings that you'll be doing now would be at those rates that we were indicating or around those rates that we were indicating earlier. So therefore, if you believe the market was going to continue this quarter at or around where it's being fixed right now, you would model 17 or so, 17.5 for the Kamsarmaxes for the balance of the days, and you would model 12.5 for the Ultramaxes for the rest of the days. If you felt it was going to be higher, you model more, and if you think it's going to be lower, you model less.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [19]

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Yes. No, I get that. The question was, is there off-hire days that we should -- because of those scrubber investment plan, should we think about that as offsetting some of the spot rate strength?

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Hugh Baker, Scorpio Bulkers Inc. - CFO [20]

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Not Really. I think that the -- there's nothing really significant or unusual to report in respect of off-hire.

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Operator [21]

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

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Randall Giveans, Jefferies LLC, Research Division - Equity Analyst [22]

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Two quick questions for me. So chartering in the 4 Kamsarmaxes, selling 2 Ultramaxes, is there a new preference, let's call it, for Kamsars? And what is the reason for the sale of the Ultramaxes kind of at this point in the cycle?

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

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I think the simple reason as we're aware of, perhaps we disagree with the previous questioner's methodology of doing things, but we agree totally that the company is trading significantly below its net asset value. So we are securing sales where we can that are at the NAV, which will ultimately close that gap, which is pretty huge. I mean, $6 up to $10 is a pretty steep position with the $10 we know is rising every day. So we're cognizant of what the previous questioner is really driving at that we have to start to create better value in the stock, and we agree with that, so that's that part.

The second part is we believe we're moving to stronger times. So we've felt that for, obviously, a little while now and the hire with stronger times plus the IMO factor, the IMO regulation. So in stronger times, your higher-bases ships, your bigger ships are going to be earning slightly more. And obviously, Kamsarmaxes with scrubbers are going to have a better position to IMO returns than Ultramaxes without scrubbers. And we have staged our own scrubber installations waiting for Kamsarmaxes to be done first and the Ultramaxes to be done (inaudible). So it's a fine tweaking of the position. And also, if you look at our book, we came into the position with more Ultra deadweight than we had Kamsars. So we're just balancing the position, slightly tweaking it to adding more risk because we are expecting we are going into better times.

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Randall Giveans, Jefferies LLC, Research Division - Equity Analyst [24]

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Okay. I guess two quick follow-ups on that. The $10 you're referring to is the projected or your current NAV for SALT?

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [25]

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I think $10 is about where the NAV has been for the last 2, 3, 4 weeks.

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Randall Giveans, Jefferies LLC, Research Division - Equity Analyst [26]

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Okay. That's fine.

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [27]

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Right? And then the -- it's rising simply because the rates are -- even the rates we've given are significantly cash flow positive. The rates that we're fixing at now are very cash flow positive. I mean to put it in perspective, if you've got a vessel that's only $18,000 with $5,000, $6,000 in costs, that's $12,000 a day times 360 days is, what's that? $4.3 million, $4.4 million of cash flow over an NAV value of $19 million, $20 million, $21 million. Well, that asset is going to be going up every second today. The S&P market is moving up, which is why my comment is that whatever we or you think the NAV is last week, it'll be higher by tomorrow.

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Randall Giveans, Jefferies LLC, Research Division - Equity Analyst [28]

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Got it. Okay. Just trying to clarify that. Now segueing to the scrubber installations, which you kind of mentioned on. In the 2Q '19 earnings release, the release guided to 3 Kamsarmaxes being scheduled for 2Q '19. Looking at your revised schedules, it looks some of those installations and the, I guess, affiliated payment have slipped into 3Q, same with Ultramaxes. Some of those have been moved around from 3Q into 4Q. So all that being said, have there been any scrubbers installed yet? And per the table, will 17 still be completed by the end of the year?

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Hugh Baker, Scorpio Bulkers Inc. - CFO [29]

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Randy, we have 2 vessels currently in the shipyard at the moment having scrubbers installed, but those installations have not completed yet. So the answer is -- pretty soon is the answer.

In terms of the wider question, we continue to update our scrubber program and the timings related to that. There's not really a lot of change. But certainly, on a quarterly basis, in our earnings press release, we put in the latest -- what it looks like as of the quarter. But essentially speaking, there haven't been any really big changes in our scrubber program for a while.

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Randall Giveans, Jefferies LLC, Research Division - Equity Analyst [30]

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Okay. So by year-end, mid- to high teens in terms of numbers of scrubbers installed?

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Hugh Baker, Scorpio Bulkers Inc. - CFO [31]

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Yes.

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Operator [32]

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Our next question comes from the line of Jonathan Chappell with Evercore.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [33]

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Just two strategic follow-ups from some of the prior questions, neither of which has to do with your STNG position. So first, I'm just trying to understand, I think you probably agreed to sell -- or the Board agreed to sell the Ultramaxes at a bit of a different time in the market, it was much weaker. The Kamsarmax charter in decision is probably more recent since the market strengthened, and I understand your reasoning for doing both of them at the time. As we think about going forward, though, should we look at more of an assets-light strategy as you continue to try to arb the NAV discount through asset sales while chartering more -- chartering in more to offset? Or are you kind of good where you are right now with the vessel sales and you're looking to add more operating leverage going forward?

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

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Well, I think the chance to charter in has passed, I think, pretty well now in terms of really putting on -- you might be able to finance a couple of things in the operating thing, but by and large, the market has moved up very strongly and people aren't there to trade their ships away lightly. So we're -- basically, we -- you've kind of got the hand that you've got in terms of the length. I think that the -- as Hugh pointed out, even after we pay off the baby bond, the liquidity itself is pretty okay. You will have then the sales and then you have a situation and then you've got positive cash flow. So you can just take it from that position and watch it. You're not going to -- and you'll watch things on -- literally opportunistically as it works from that point.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [35]

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So if there's no more charter in opportunities, but you're still optimistic on the market, should we assume that the asset sale strategy has probably played out as well? That -- is that kind of what you're explaining?

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [36]

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No. Maybe it does, maybe it doesn't. Maybe you have a situation where your asset prices are -- we have to watch what happens as to whether or not the -- I mean the whole of the dry cargo stocks, I don't think we're an exception to this rule, trading certainly below their NAVs. So we have to watch and see what we're given here, how persistent this dislocation is. So if -- normally, you would expect that if the sport rates are strengthening across the board in dry cargo that they will react fairly quickly and that the -- all the dry cargo stocks would go up, that would be the traditional position whilst the cash flow comes in. Well, maybe you're in a situation where that takes a little bit more time and so maybe you would be in a position where you would think, okay, fine, we'll just sell a couple of more ships and we'll see.

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Jonathan B. Chappell, Evercore ISI Institutional Equities, Research Division - Senior MD [37]

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Okay. And then along those same lines, I mean, if we kind of think about STNG a year ago, kind of active defense, a lot of sale and leasebacks, and now you've focused a lot of the strategy and the cash flows that, that market has turned a little bit on deleveraging. With SALT, maybe it's 6 to 9 months or a little bit later, the market is starting to improve a little bit, you're just fresh off a bunch of sale and leasebacks. I know you talked about the difference between the current stock price and the NAV, but should we think that the primary use of cash right now would be deleveraging until you're sure that there's a real cycle here and this isn't just a temporary lift?

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [38]

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The -- I think the -- with the vessels that have been sold, I think that the deleveraging part has taken part -- place because the deleveraging was -- again, as you pointed out yourself, the decision to do a lot of this stuff was done much earlier. And so we've had the benefit -- we managed the balance sheet side without the expectation that the market would've strengthened at all even through the end of May-June period, and we'd allowed for the balance sheet to have a market that you could basically repeat the second quarter weakness for a few more quarters. Well, all of a sudden, we're already 2 months significantly to the positive, and if this market carries on for another month, well, we're going to be really positive. So I think it was fair to say that we're very happy with the -- happy is -- that's a stupid word, but we've completed the point at which we have put the balance sheet in a position where we need to deleverage to be comfortable.

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Operator [39]

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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 [40]

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So just to follow-up quickly on a few things. As it relates to in particular the spot Kamsarmax charters, and Robert, I appreciate you sort of effectively said you're buying an option that you can convert into a fixed rate layer and arbitrage the difference. Is that the entire motivation? Or is there some element of the idea that perhaps you can, as a function of the pool, maybe do better than the spot market at all? Or is it a market that's not...

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [41]

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Well, that's part of the arbitration. You clearly think that in the structure you're taking it in, and you will ultimately be able to fix either through your paper combined with your ability of trading in the spot market -- trading in the pool in the spot market at better than what the other person is giving it to you at, but you can do both. As I've said, one of the vessels has already been hedged away at a spread where you've taken it in and you've let it go out. So it's a combination of the both positions. But it's not a -- I don't want to make a big thing about it. It's something that we're starting. It's, let's say, more trading. It shows, let's say, a more confident aspect of the company and its development in the future because it is starting to create those commercial trading platforms rather than what it's been up to now, which is just take -- just really putting ships out on shorter-term charters, et cetera. So it's really, I would say, the beginnings of seeing a more -- of trying to create more value through the commercial side than just the actual asset and balance sheet side of the company. But it's an early beginning. This is nothing but -- 4 ships is not going to make or break the next quarters.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [42]

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Right. I understand. Well, to that end, and I know that you had said that the market had kind of passed for being able to charter in ships. Does that include the similar sort of spot link to charter? I mean I would imagine that people would be...

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [43]

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Yes. Perhaps not. There would -- that part of it seems to historically be okay that in most points of the market, there are people who just simply say, fine, I'll fix my vessel out at a discount to the index or, depending on the quality or the specification, a premium to the index.

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [44]

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Okay. Perfect. And then this is just me trying to sort the numbers on the scrubber thing...

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [45]

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But Ben, just to be clear, if you're doing that part, you would be making -- we would be doing that to make the spread of the pools perform as opposed to edging back to the favor, okay?

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Benjamin Joel Nolan, Stifel, Nicolaus & Company, Incorporated, Research Division - MD [46]

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Right. On the scrubbers, the table show and in the presentation, it shows 52 ships, I believe. But in the tax that says there are 37 firm contracts plus 9 options, which is a little bit less than 52. My -- is there an assumption that you -- just the entire fleet is going to be outfitted with scrubbers beyond what's contracted or optioned? Or how -- maybe I guess you could...

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Robert L. Bugbee, Scorpio Bulkers Inc. - Co-Founder, President & Director [47]

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Well, I think the best way to prudently model it for -- in terms of the balance sheet and the use of cash and required cash would be to assume that all of the options are exercised. It is our obligation to tell you the -- to be transparent about how the contract is. And commercially, if we were fortunate that we were negotiating on block at a fairly early time and we were fortunate to create options in our contract, then an option always has some worth.

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Operator [48]

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This concludes today's question-and-answer session. I would now like to turn the call back to Hugh Baker for any further remarks.

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Hugh Baker, Scorpio Bulkers Inc. - CFO [49]

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Thank you, operator. We have no further remarks. Thank you all for joining us today, and we hope to be speaking with you all soon. Thank you.

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Operator [50]

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Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone, have a great day.