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Scorpio Bulkers Inc. Announces Financial Results for the Fourth Quarter of 2018, Declares a Quarterly Dividend and Increases Share Repurchase Authorization

MONACO, Jan. 28, 2019 (GLOBE NEWSWIRE) -- Scorpio Bulkers Inc. (SALT) (“Scorpio Bulkers”, or the “Company”), today reported its results for the three months and year ended December 31, 2018.

The Company also announced that on January 25, 2019, its Board of Directors declared a quarterly cash dividend of $0.02 per share on the Company’s common shares.

Results for the Three and Twelve Months Ended December 31, 2018 and 2017

For the fourth quarter of 2018, the Company’s GAAP net loss was $7.4 million, or $0.11 loss per diluted share. These results include a non-cash loss of $7.7 million and cash dividend income of $0.5 million, or $0.10 loss per diluted share from the Company’s equity investment in Scorpio Tankers Inc. and a write-off of deferred financing costs of $1.7 million, or $0.03 loss per diluted share, related to the refinancing of existing debt (see discussion below, “Debt”). For the same period in 2017, the Company’s GAAP net loss was $1.1 million, or $0.01 loss per diluted share. Total vessel revenues for the fourth quarter of 2018 were $65.2 million, compared to $51.1 million for the same period in 2017. Earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the fourth quarters of 2018 and 2017 were $23.3 million and $22.9 million, respectively (see Non-GAAP Financial Measures below).

For the year ended December 31, 2018, the Company’s GAAP net loss was $12.7 million or $0.18 loss per diluted share, including a non-cash loss of $7.7 million and cash dividend income of $0.5 million, or $0.10 loss per diluted share from the Company’s equity investment in Scorpio Tankers Inc. and a write-off of deferred financing costs of $3.8 million, or $0.05 loss per diluted share, related to the refinancing of existing debt. For the year ended December 31, 2017, the Company’s GAAP net loss was $59.7 million, or $0.83 loss per diluted share.  Total vessel revenues for 2018 were $242.5 million, compared to $162.2 million for 2017. EBITDA for the years ended December 31, 2018 and 2017 were $100.6 million and $35.3 million, respectively (see Non-GAAP Financial Measures below).

While the results for the year ended December 31, 2018 did not include any non-GAAP adjustments to net income, the Company’s 2017 GAAP net loss included a loss/write-off of vessels and assets held for sale of $17.7 million and the write-off of deferred financing costs on the credit facility related to those specific vessels of $0.5 million. Excluding these items, the Company’s adjusted net loss for 2017 was $41.6 million, or $0.57 adjusted loss per diluted share. Adjusted EBITDA for 2017 was $53.5 million (see Non-GAAP Financial Measures below).

TCE Revenue

TCE Revenue Earned during the Fourth Quarter of 2018

  • Our Kamsarmax fleet earned $13,148 per day
  • Our Ultramax fleet earned $12,213 per day

Voyages Fixed thus far for the First Quarter of 2019

  • Kamsarmax fleet: approximately $12,913 per day for 60% of the days
  • Ultramax fleet: approximately $11,072 per day for 56% of the days

Cash and Cash Equivalents

As of January 25, 2019, the Company had approximately $74.3 million in cash and cash equivalents.

Recent Significant Events

Share Repurchase Program

During the fourth quarter of 2018, the Company repurchased a total of approximately 4.5 million shares of the Company’s common shares under the then existing share repurchase programs at an aggregate cost of approximately $27.0 million, or an average cost of $6.05 per share, which was funded from available cash resources. There have been no share repurchases since December 31, 2018. As of January 25, 2019, $24.8 million remained available under the then existing share repurchase program.

On January 25, 2019, the Company’s Board of Directors authorized a new share repurchase program to purchase up to an aggregate of $50.0 million of the Company’s common shares.  This new share repurchase program replaced the Company’s previous share repurchase program that was authorized in October 2018 and that was terminated in conjunction with the authorization of the new share repurchase program. The specific timing and amounts of the repurchases will be in the sole discretion of management and may vary based on market conditions and other factors. The Company is not obligated under the terms of the program to repurchase any of its common shares. The authorization has no expiration date.

Dividend

In the fourth quarter of 2018, the Company’s Board of Directors declared and the Company paid a quarterly cash dividend of $0.02 per share totaling approximately $1.5 million.

On January 25, 2019, the Company’s Board of Directors declared a quarterly cash dividend of $0.02 per share, payable on or about March 15, 2019, to all shareholders of record as of February 15, 2019. As of January 25, 2019, 71,217,258 shares were outstanding.

Investment in Scorpio Tankers Inc.

On October 12, 2018, the Company invested $100.0 million in a related party, Scorpio Tankers Inc. (STNG) ("Scorpio Tankers") for approximately 54.1 million, or (as of October 12, 2018) 10.9%, of Scorpio Tankers’ issued and outstanding common shares. The investment was part of a larger $337.0 million equity raise through a public offering of common shares by Scorpio Tankers.

The Company measures its investment in Scorpio Tankers based on the quoted market price of Scorpio Tankers’ common stock, discounted for a temporary lack of marketability as at December 31, 2018 pursuant to the terms of the lock-up agreement entered into by the Company at the time of the investment. The lock-up agreement expired on January 7, 2019. At December 31, 2018, the Company recorded a $7.7 million non-cash loss and $0.5 million cash dividend related income from the investment in Scorpio Tankers, which were recorded in Investment income (loss) and Dividend income, respectively, on the Consolidated Statement of Operations.

On January 18, 2019, Scorpio Tankers effected a one-for-ten reverse stock split and as such the Company now owns approximately 5.4 million common shares of Scorpio Tankers.

On January 25, 2019, the fair value of the Scorpio Tankers’ common stock owned by the Company was approximately $110.4 million.

IMO 2020

In November 2018, the Company entered into an agreement with third parties to purchase exhaust gas cleanings systems (“scrubbers”) for 18 of its vessels in 2019 and for 10 of its vessels in 2020.  The total value of these agreements is estimated to be $41.9 million.  The systems that are being fitted are of ‘hybrid ready’ design, which allows them to be upgraded to a ‘closed loop’ configuration at a future date. As part of the agreement, the Company also has an option to purchase exhaust gas cleaning systems for up to 18 additional vessels in 2020.

The Company is in discussions with its existing lenders, as well as leasing companies, to provide secured financing for substantially all of the estimated total cost of the scrubber installation program as well as to provide additional operating liquidity.  These discussions are ongoing, however the Company expects to be able to make announcements within the first quarter of 2019.

The Company’s projected scrubber installation schedule and estimated payments for such installation on all the vessels in the Company’s fleet is as follows (dollars in thousands):

    Number of Vessels by Type   Estimated Payments  
    Ultramax   Kamsarmax    
Q1 2019       $ 7,046    
Q2 2019     3   11,271    
Q3 2019   9   1   23,147    
Q4 2019   1   4   17,399    
Q1 2020   11   1   24,322    
Q2 2020   9   6   24,529    
Q3 2020   4   4   12,223    
Q4 2020   3     4,980    
Q1 2021       859    
Total   37   19   $ 125,776    

Charter Employment Fixed

The following table summarizes certain information for the Company’s vessels that have been fixed via a time charter.

Vessel   Type   Earliest Redelivery Date   Rate Per Day
SBI Jaguar   Ultramax   April 2019   $ 16,000  
SBI Ursa   Ultramax   June 2019   15,000  
SBI Tango   Ultramax   March 2019   14,500  
SBI Cougar   Ultramax   March 2019   16,500  
SBI Echo   Ultramax   February 2019   15,000  
SBI Thalia   Ultramax   April 2019   16,500  
SBI Lyra   Ultramax   April 2019   16,500  
SBI Libra   Ultramax   April 2019   15,250  
SBI Hera   Ultramax   April 2019   14,850  
SBI Bolero   Kamsarmax   May 2019   14,500  
SBI Macarena   Kamsarmax   February 2019   16,000  
SBI Mazurka   Kamsarmax   May 2019   16,000  
SBI Samba   Kamsarmax   April 2019   15,500  

Debt

$34.0 Million Credit Facility

On October 3, 2018, we entered into a senior secured credit facility for up to $34.0 million with a leading European financial institution, or the “$34.0 Million Credit Facility,” to refinance up to 62.5% of the fair market value of two Kamsarmax bulk vessels (SBI Jive and SBI Swing). The loan facility, which is comprised of a term loan up to $17.0 million and a revolver of up to $17.0 million, has a final maturity date of seven years from signing date and bears interest at LIBOR plus a margin of 2.35% per annum. This facility is secured by, among other things, a first preferred mortgage on the two vessels and is guaranteed by each of the vessel owning subsidiaries. On October 5, 2018, the Company drew down the entire $34.0 million available on this facility.

$330.0 Million Credit Facility

During October of 2018, the Company repaid approximately $23.1 million of our $330.0 Million Credit Facility as two of the Kamsarmax vessels previously financed by this loan are now financed under the $34.0 Million Credit Facility.

During November of 2018, the Company repaid an additional approximately $61.7 million under this credit facility upon the closing of the $90.0 Million Credit Facility discussed below.

$20.5 Million Lease Financing - SBI Hermes

On November 16, 2018, we closed a financing transaction with an unaffiliated third party for the sale and leaseback of the SBI Hermes, a 2016 Japanese-built Ultramax vessel, for consideration of $20.5 million. As part of the transaction, the Company has agreed with the buyer to bareboat charter the vessel for a period of five years at $5,850 per day. The transaction also provides the Company with an option to repurchase the SBI Hermes beginning on the third anniversary of the sale until the end of the bareboat charter agreement. If converted to floating interest rates, based on the expected weighted average life of the transaction, the equivalent cost of financing at the then prevailing swap rates would have been LIBOR plus a margin of 1.43% per annum.

$27.3 Million Credit Facility

During November of 2018, the Company repaid approximately $8.8 million on its $27.3 Million Credit Facility as the SBI Hermes, an Ultramax vessel that was previously financed under this credit facility, is now financed under our $20.5 Million Lease Financing - SBI Hermes.

$90.0 Million Credit Facility

On November 8, 2018, the Company entered into a senior secured credit facility for up to $90.0 million with Nordea Bank Abp, acting through its New York branch, and DVB Bank SE. The loan facility, which has a final maturity date of five years from the signing date and bears interest at LIBOR plus a margin of 2.35% per annum, is being used to finance up to 60% of the fair market value of six Ultramax dry bulk vessels (SBI Orion, SBI Hyperion, SBI Tethys, SBI Hercules, SBI Samson and SBI Phoenix). This facility is secured by, among other things, a first preferred mortgage on the six vessels and is guaranteed by each of the vessel owning subsidiaries. On November 13, 2018, the Company drew down the entire $90.0 million available on this facility.

Summary of Recent Drawdowns and Repayments on Credit Facilities

The drawdowns and repayments on the Company’s credit facilities during the fourth quarter of 2018 related to the debt refinancing transactions described above are as follows:

Credit Facility   Drawdown (Repayment) Amount
($ thousands)
 
$34.0 Million Credit Facility   $ 34,000    
$90.0 Million Credit Facility   90,000    
$330.0 Million Credit Facility   (84,803 )  
$20.5 Million Lease Financing - SBI Hermes   20,500    
$27.3 Million Credit Facility   (8,817 )  

Debt Overview
The Company’s outstanding debt balances, gross of unamortized deferred financing costs as of December 31, 2018 and January 25, 2019, are as follows (dollars in thousands):

    As of
December 31,
2018
  As of January 25,
2019
 
           
Credit Facility   Amount Outstanding  
Senior Notes   $ 73,625     $ 73,625    
$330 Million Credit Facility   140,677     140,677    
$42 Million Credit Facility   14,105     14,105    
$12.5 Million Credit Facility   9,400     9,400    
$27.3 Million Credit Facility   9,008     9,008    
$85.5 Million Credit Facility   78,972     78,972    
$38.7 Million Credit Facility   35,100     35,100    
$19.6 Million Lease Financing - SBI Rumba   18,101     18,003    
$12.8 Million Credit Facility   12,325     12,325    
$19.0 Million Lease Financing - SBI Tango   18,450     18,359    
$19.0 Million Lease Financing - SBI Echo   18,481     18,394    
$30.0 Million Credit Facility   29,420     29,420    
$60.0 Million Credit Facility   58,797     58,797    
$184.0 Million Credit Facility   180,229     180,229    
$34.0 Million Credit Facility   34,000     34,000    
$90.0 Million Credit Facility   90,000     90,000    
$20.5 Million Lease Financing - SBI Hermes   20,299     20,199    
Total   $ 840,989     $ 840,613    

The Company’s projected quarterly debt repayments on its bank loans and senior notes and bareboat charter payments on its finance leases through 2019 are as follows (dollars in thousands):

    Principal on
Bank Loans and
Senior Notes
  Finance Lease   Total
Q1 2019 (1)     14,847       1,341       16,188  
Q2 2019     15,617       2,012       17,629  
Q3 2019 (2)     88,817       2,012       90,829  
Q4 2019     15,813       2,012       17,825  
Total   $ 135,094     $ 7,377     $ 142,471  

(1) Relates to payments expected to be made from January 26, 2019 to March 31, 2019.
(2) Includes $73.6 million repayment of Senior Notes due at maturity.

Financial Results for the Three Months Ended December 31, 2018 Compared to the Three Months Ended December 31, 2017

For the fourth quarter of 2018, the Company’s GAAP net loss was $7.4 million, or $0.11 loss per diluted share compared to a GAAP net loss of $1.1 million, or $0.01 loss per diluted share in the same period in 2017.  Results for the fourth quarter of 2018 include a non-cash loss of $7.7 million and cash dividend income of $0.5 million, or $0.10 loss per diluted share from the Company’s equity investment in Scorpio Tankers Inc. and a write-off of deferred financing costs of $1.7 million, or $0.03 loss per diluted share, related to the refinancing of existing debt. EBITDA for the fourth quarters of 2018 and 2017 were $23.3 million and $22.9 million, respectively (see Non-GAAP Financial Measures).

Total vessel revenues for the fourth quarter of 2018 were $65.2 million compared to $51.1 million in the fourth quarter of 2017. The Company’s TCE revenue (see Non-GAAP Financial Measures) for the fourth quarter of 2018 was $65.0 million, an increase of $14.0 million from the prior year period. During the fourth quarter of 2018, rates earned by the Company’s Ultramax Operations were driven by the South American and Black Sea grain markets as well as demand for petcoke and coal exports from the United States Gulf. Rates earned by the Company’s Kamsarmax vessels were lower than anticipated due to the restriction of coal imports by the Chinese government, mild winter temperatures and the lack of grain cargoes from the United States to the Far East.

Total operating expenses for the fourth quarter of 2018 were $51.4 million compared to $43.2 million in the fourth quarter of 2017.  The increase from the prior year period relates primarily to increases in vessel operating expenses and depreciation due principally to the growth of the Company’s fleet, as well as general administrative expenses due to an increase in consulting and employee compensation.

Ultramax Operations

  Three Months Ended
December 31,
       
Dollars in thousands 2018   2017   Change   % Change
TCE Revenue:              
Vessel revenue $ 42,419     $ 30,266     $ 12,153     40  
Voyage expenses 65     47     18     38  
TCE Revenue $ 42,354     $ 30,219     $ 12,135     40  
Operating expenses:              
Vessel operating costs 17,791     14,082     3,709     26  
Charterhire expense 981     936     45     5  
Vessel depreciation 9,401     7,819     1,582     20  
General and administrative expense 1,089     881     208     24  
Total operating expenses $ 29,262     $ 23,718     $ 5,544     23  
Operating income $ 13,092     $ 6,501     $ 6,591     101  

Vessel revenue for the Company’s Ultramax Operations increased to $42.4 million for the fourth quarter of 2018 from $30.3 million in the prior year period. During the fourth quarter of 2018, both the South American and Black Sea grain markets supported Ultramax rates in the Atlantic as Chinese buyers replaced their usual grain imports from the United States Gulf with imports from those markets. The United States Gulf market was able to replace some of that lost demand with petcoke and coal, as prices for those commodities fell. However, high levels of Chinese coal stockpiles, coupled with government year-end restrictions on imports from October onwards negatively affected Pacific round voyage levels.

TCE revenue (see Non-GAAP Financial Measures) for the Company’s Ultramax Operations was $42.4 million for the fourth quarter of 2018 and was associated with a day-weighted average of 37 vessels owned and one time chartered-in vessel, compared to $30.2 million for the prior year period, associated with a day-weighted average of 29 vessels owned. TCE revenue per day was $12,213 and $10,886 for the fourth quarters of 2018 and 2017, respectively.

Dollars in thousands Three Months Ended
December 31,
       
Ultramax Operations: 2018   2017   Change   % Change
TCE Revenue $ 42,354     $ 30,219     $ 12,135     40  
TCE Revenue / Day $ 12,213     $ 10,886     $ 1,327     12  
Revenue Days 3,468     2,776     692     25  

The Company’s Ultramax Operations vessel operating costs were $17.8 million for the fourth quarter of 2018, relating to the 37 vessels owned on average during the period, and included approximately $1.1 million of takeover costs and contingency expenses. Vessel operating costs for the prior year period were $14.1 million and related to the 29 vessels owned on average during the period. Daily operating costs excluding takeover costs and contingency expenses for the fourth quarters of 2018 and 2017 were $4,901 and $4,749, respectively.  Daily operating costs for the fourth quarter of 2018 decreased from $5,037 in the third quarter of 2018. The fluctuations from period to period are due primarily to the timing of spare and store purchases, as well as repairs and maintenance, including certain annual class and certification costs.

Charterhire expense for the Company’s Ultramax Operations was approximately $1.0 million for both the third quarters of 2018 and 2017 and relates to the vessel time chartered-in at $10,125 per day.

Ultramax Operations depreciation increased to $9.4 million in the fourth quarter of 2018 from $7.8 million in the prior year period, reflecting the increase in the Company’s weighted average vessels owned to 37 from 29.

General and administrative expense for the Company’s Ultramax Operations was $1.1 million for the fourth quarter of 2018 and $0.9 million in the prior year period. General and administrative expenses consist primarily of administrative service fees, which are incurred on a per vessel per day basis, and bank charges, which are incurred based on the number of transactions.  The increase versus the prior year period reflects the growth of the Company’s fleet.

Kamsarmax Operations

  Three Months Ended
December 31,
       
Dollars in thousands 2018   2017   Change   % Change
TCE Revenue:              
Vessel revenue $ 22,752     $ 20,861     $ 1,891     9  
Voyage expenses 112     50     62     124  
TCE Revenue $ 22,640     $ 20,811     $ 1,829     9  
Operating expenses:              
Vessel operating costs 8,796     8,719     77     1  
Charterhire expense 104     11     93     845  
Vessel depreciation 5,013     5,021     (8 )    
General and administrative expense 554     324     230     71  
Total operating expenses $ 14,467     $ 14,075     $ 392     3  
Operating income $ 8,173     $ 6,736     $ 1,437     21  

Vessel revenue for the Company’s Kamsarmax Operations increased to $22.8 million in the fourth quarter of 2018 from $20.9 million in the prior year period. Kamsarmax rates were lower in the fourth quarter of 2018 when compared to the first nine months of 2018 due to the restriction of coal imports by the Chinese government, mild winter temperatures and the lack of grain cargoes from the United States to the Far East.

TCE revenue (see Non-GAAP Financial Measures) for the Company’s Kamsarmax Operations was $22.6 million for the fourth quarter of 2018 associated with a day-weighted average of 19 vessels owned, compared to $20.8 million for the prior year period associated with a day-weighted average of 18 vessels owned and one vessel time chartered-in. TCE revenue per day was $13,148 and $12,605 for the fourth quarters of 2018 and 2017, respectively.

Dollars in thousands Three Months Ended
December 31,
       
Kamsarmax Operations: 2018   2017   Change   % Change
TCE Revenue $ 22,640     $ 20,811     $ 1,829     9  
TCE Revenue / Day $ 13,148     $ 12,605     $ 543     4  
Revenue Days 1,722     1,651     71     4  

Kamsarmax Operations vessel operating costs were $8.8 million for the fourth quarter of 2018 relating to the 19 vessels owned on average during the period and included $0.3 million of takeover costs and contingency expenses. This compares to the prior year period of $8.7 million relating to 18 vessels owned on average during the period. Daily operating costs excluding takeover costs and contingency expenses for the fourth quarters of 2018 and 2017 were $4,857 and $4,943, respectively. Vessel operating expenses decreased from $4,931 in the third quarter of 2018, due primarily to a decrease in spare and store purchases.

While the Company did not time charter-in any Kamsarmax vessels in either the fourth quarter of 2018 or 2017, it has a profit and loss sharing agreement with a third party related to one Kamsarmax vessel, for which it recorded its share of the losses.

Kamsarmax Operations depreciation was $5.0 million in both the fourth quarters of 2018 and 2017 as the Company’s weighted average vessels owned were 19 and 18 in the same periods.

General and administrative expense for the Company’s Kamsarmax Operations was $0.6 million and $0.3 million for the fourth quarters of 2018 and 2017, respectively.  The expense consists primarily of administrative services fees, which are incurred on a per vessel per day basis, and bank charges, which are incurred based on the number of transactions.

Corporate

Certain general and administrative expenses the Company incurs, all of its financial expenses and investment income or losses are not attributable to a specific segment. Accordingly, these costs are not allocated to the Company’s segments. These general and administrative expenses, including compensation, audit, legal and other professional fees, as well as the costs of being a public company, such as director fees, were $7.4 million and $5.3 million in the fourth quarters of 2018 and 2017, respectively.  The quarter over quarter increase is due primarily to increases in compensation and consulting fees.

The Company recorded a non-cash loss of $7.7 million for the fourth quarter of 2018 and a cash dividend of $0.5 million on its equity investment in Scorpio Tankers.

Financial expenses, net increased to $14.4 million in the fourth quarter of 2018 from $9.1 million in the prior year period due to an increase in the LIBOR rate and higher levels of debt due to refinancing, as well as the write-off of $1.7 million of deferred financing costs related to such refinancing.

Financial Results for the Year Ended December 31, 2018 Compared to the Year Ended December 31, 2017

For the year ended December 31, 2018, the Company’s GAAP net loss was $12.7 million or $0.18 loss per diluted share compared to a GAAP net loss of $59.7 million, or $0.83 loss per diluted share in the same period in 2017. Results for the year ended December 31, 2018 include a non-cash loss of $7.7 million and a cash dividend of $0.5 million, or $0.10 loss per diluted share from the Company’s equity investment in Scorpio Tankers and a write-off of deferred financing costs of $3.8 million, or $0.05 loss per diluted share, related to the refinancing of existing debt. EBITDA for the years ended December 31, 2018 and 2017 were $100.6 million and $35.3 million, respectively (see Non-GAAP Financial Measures). Excluding the loss/write-off of vessels and assets held for sale of $17.7 million and the write-off of deferred financing costs on the credit facility related to those specific vessels of $0.5 million, the Company’s adjusted net loss for the year ended December 31, 2017 was $41.6 million, or $0.57 adjusted loss per diluted share and adjusted EBITDA was $53.5 million (see Non-GAAP Financial Measures below). There were no such non-GAAP adjustments to the Company’s net income for the year ended December 31, 2018.

Total vessel revenues for the year ended December 31, 2018 were $242.5 million, an increase of 50% from $162.2 million for the same period in 2017. The Company’s TCE revenue (see Non-GAAP Financial Measures) for the year ended December 31, 2018 was $242.0 million compared to $161.8 million for the same period in 2017.  The rates earned in 2018 by both the Company’s Ultramax and Kamsarmax Operations were driven by a decrease in the supply of tonnage and the United States and China trade war which resulted in longer voyages as Chinese imports from the United States were replaced with imports from South America.

Total operating expenses for the year ended December 31, 2018 were $199.2 million compared to $187.8 million for the same period in 2017. The year over year increase relates to increases in vessel operating costs and depreciation resulting from the increase in the size of the Company’s fleet, offset in part to the loss/write-off of vessels and assets held for sale of $17.7 million recorded in 2017.

Ultramax Operations

  Year Ended December 31,        
Dollars in thousands 2018   2017   Change   % Change
TCE Revenue:              
Vessel revenue $ 155,197     $ 94,380     $ 60,817     64  
Voyage expenses 330     129     201     156  
TCE Revenue $ 154,867     $ 94,251     $ 60,616     64  
Operating expenses:              
Vessel operating costs 71,220     51,445     19,775     38  
Charterhire expense 3,754     975     2,779     285  
Vessel depreciation 37,287     29,797     7,490     25  
General and administrative expense 4,344     3,389     955     28  
Total operating expenses $ 116,605     $ 85,606     $ 30,999     36  
Operating income $ 38,262     $ 8,645     $ 29,617     343  

Vessel revenue for the Company’s Ultramax Operations increased to $155.2 million for the year ended December 31, 2018 from $94.4 million in the prior year. Despite tariffs and sanctions disrupting 2018, rates earned by the Company’s Ultramax Operations increased by 24% compared to 2017 due to lower levels of tonnage supply, grain exports from the South American and Black Sea markets and petcoke and coal cargoes out of the United States Gulf.

TCE revenue (see Non-GAAP Financial Measures) for the Company’s Ultramax Operations was $154.9 million for the year ended December 31, 2018 associated with a day-weighted average of 37 vessels owned and one time chartered-in vessel, compared to $94.3 million for the prior year period, associated with a day-weighted average of 29 vessels owned. TCE revenue per day was $11,226 and $9,159 for the year ended December 31, 2018 and 2017, respectively.

Dollars in thousands Year Ended December 31,        
Ultramax Operations: 2018   2017   Change   % Change
TCE Revenue $ 154,867     $ 94,251     $ 60,616     64
TCE Revenue / Day $ 11,226     $ 9,159     $ 2,067     23
Revenue Days 13,795     10,291     3,504     34

The Company’s Ultramax Operations vessel operating costs were $71.2 million for the year ended December 31, 2018, relating to the 37 vessels owned on average during the period and included approximately $4.2 million of takeover costs and contingency expenses.  Vessel operating costs for the prior year were $51.4 million and related to the 29 vessels owned on average during the period. Daily operating costs excluding takeover costs, contingency expenses and other non-operating expenses for the years ended December 31, 2018 and 2017 were $4,962 and $4,842, respectively. The increase is due to an increase of purchases of spares and stores, as well as freight and forwarding expense.

Charterhire expense for the Company’s Ultramax Operations was approximately $3.8 million for the year ended December 31, 2018, and relates to the vessel the Company has time chartered-in at $10,125 per day since the end of the third quarter of 2017.

Ultramax Operations depreciation increased to $37.3 million for the year ended December 31, 2018 from $29.8 million in the prior year reflecting the increase in the Company’s weighted average vessels owned to 37 from 29.

General and administrative expense for the Company’s Ultramax Operations was $4.3 million for 2018 and $3.4 million in the prior year period. General and administrative expenses consist primarily of administrative service fees, which are incurred on a per vessel per day basis, and bank charges, which are incurred based on the number of transactions.  The increase versus the prior year reflects the growth of the Company’s fleet.

Kamsarmax Operations

  Year Ended December 31,        
Dollars in thousands 2018   2017   Change   % Change
TCE Revenue:              
Vessel revenue $ 87,305     $ 67,825     $ 19,480     29  
Voyage expenses 219     300     (81 )   (27 )
TCE Revenue $ 87,086     $ 67,525     $ 19,561     29  
Operating expenses:              
Vessel operating costs 34,254     35,336     (1,082 )   (3 )
Charterhire expense 422     4,417     (3,995 )   (90 )
Vessel depreciation 19,320     18,713     607     3  
General and administrative expense 2,069     1,916     153     8  
Loss / write down on assets held for sale     17,701     (17,701 )   (100 )
Total operating expenses $ 56,065     $ 78,083     $ (22,018 )   (28 )
Operating income (loss) $ 31,021     $ (10,558 )   $ 41,579     394  

Vessel revenue for the Company’s Kamsarmax Operations increased to $87.3 million for the year ended December 31, 2018 from $67.8 million in the prior year.  Rates earned by the Company’s Kamsarmax Operations during the year ended December 31, 2018 increased 31% compared to 2017, as supply was down due to a lack of new deliveries, as well as increased ton per mile utilization due to an increase in voyages from the east coast of South America to China resulting from the United States and China trade wars.

TCE revenue (see Non-GAAP Financial Measures) for the Company’s Kamsarmax Operations was $87.1 million for the year ended December 31, 2018 associated with a day-weighted average of 19 vessels owned, compared to $67.5 million for prior year, associated with a day-weighted average of 18 vessels owned and one vessel time chartered-in. TCE revenue per day was $13,127 and $10,051 for the years ended December 31, 2018 and 2017, respectively.

Dollars in thousands Year Ended December 31,        
Kamsarmax Operations: 2018   2017   Change   % Change
TCE Revenue $ 87,086     $ 67,525     $ 19,561     29  
TCE Revenue / Day $ 13,127     $ 10,051     $ 3,076     31  
Revenue Days 6,634     6,718     (84 )   (1 )

Kamsarmax Operations vessel operating costs were $34.3 million for the year ended December 31, 2018, which related to the 19 vessels owned on average during the period and included approximately $1.1 million of takeover costs and contingency expenses. Vessel operating costs for the prior year were $35.3 million and related to the 18 vessels owned on average during the period. Daily operating costs excluding takeover costs, contingency expenses and other non-operating expenses for the years ended December 31, 2018 and 2017 were $4,940 and $5,028, respectively.

While the Company does not time charter-in any Kamsarmax vessels, it has a profit and loss sharing agreement relating to one Kamsarmax vessel with a third party and during the year ended December 31, 2018, the Company’s share of the loss on that vessel was $0.4 million compared to $0.8 million in the prior year period. During the prior year period, a Kamsarmax vessel was time chartered-in through August 2017 at a cost of $3.6 million.

Kamsarmax Operations depreciation increased to $19.3 million for the year ended December 31, 2018 from $18.7 million in the prior year period.  The Company’s weighted average vessels owned was 19 and 18 for the years ended December 31, 2018 and 2017, respectively.

General and administrative expense for the Company’s Kamsarmax Operations was $2.1 million and $1.9 million for the years ended December 31, 2018 and 2017, respectively.  The expense consists primarily of administrative services fees, which are incurred on a per vessel per day basis, and bank charges, which are incurred based on the number of transactions.

During the year ended December 31, 2017, the Company recorded a write-down on assets held for sale of $17.7 million related to the sale of two Kamsarmax vessels to an unaffiliated third party.

Corporate

Certain general and administrative expenses the Company incurs as well as all of its financial expenses and investment income or losses are not attributable to a specific segment. Accordingly, these costs are not allocated to the Company’s segments. These general and administrative expenses, including compensation, audit, legal and other professional fees, as well as the costs of being a public company, such as director fees, increased slightly year over year totaling $25.9 million and $23.8 million for the years ended December 31, 2018 and 2017, respectively.

The Company recorded a non cash loss of $7.7 million for the fourth quarter of 2018 and a cash dividend of $0.5 million on its equity investment in Scorpio Tankers.

Financial expenses, net increased to $49.9 million in the year ended December 31, 2018 from $33.9 million in the prior year period due to an increase in the LIBOR rate and higher levels of debt related to the increase in overall fleet size and debt refinancing, as well as the write-off of $3.8 million of deferred financing costs related to such refinancing.

Scorpio Bulkers Inc. and Subsidiaries
Consolidated Statements of Operations
(Amounts in thousands, except per share data)

    Unaudited
    Three Months Ended
December 31,
  Year Ended December 31,
    2018   2017   2018   2017
Revenue:                
Vessel revenue   $ 65,171     $ 51,127     $ 242,502     $ 162,205  
Operating expenses:                
Voyage expenses   177     97     549     429  
Vessel operating costs   26,587     22,801     105,475     86,664  
Charterhire expense   1,085     947     4,176     5,392  
Vessel depreciation   14,414     12,840     56,607     48,510  
General and administrative expenses   9,102     6,551     32,385     29,081  
Loss / write down on assets held for sale               17,701  
Total operating expenses   51,365     43,236     199,192     187,777  
Operating income (loss)   13,806     7,891     43,310     (25,572 )
Other income (expense):                
Interest income   351     197     1,107     1,100  
Dividend income   541         541      
Investment income (loss)   (7,719 )       (7,719 )    
Foreign exchange loss   5     (15 )   (68 )   (292 )
Financial expense, net   (14,357 )   (9,141 )   (49,869 )   (34,962 )
Total other expense   (21,179 )   (8,959 )   (56,008 )   (34,154 )
Net loss   $ (7,373 )   $ (1,068 )   $ (12,698 )   $ (59,726 )
                 
Loss per share:                
Basic   $ (0.11 )   $ (0.01 )   $ (0.18 )   $ (0.83 )
Diluted   $ (0.11 )   $ (0.01 )   $ (0.18 )   $ (0.83 )
                 
Basic weighted average number of common shares outstanding   69,387     71,702     71,827     71,794  
Diluted weighted average number of common shares outstanding   69,387     71,702     71,827     71,794  

Scorpio Bulkers Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)

    Unaudited    
    December 31, 2018   December 31, 2017
Assets        
Current assets        
Cash and cash equivalents   $ 67,495     $ 68,535  
Accounts receivable   10,290     7,933  
Prepaid expenses and other current assets   6,314     6,087  
Total current assets   84,099     82,555  
Non-current assets        
Vessels, net   1,507,918     1,534,782  
Vessels under construction       6,710  
Equity method investment   92,281      
Deferred financing costs, net   3,706     3,068  
Other assets   15,822     16,295  
Total non-current assets   1,619,727     1,560,855  
Total assets   $ 1,703,826     $ 1,643,410  
         
Liabilities and shareholders’ equity        
Current liabilities        
Bank loans, net   $ 60,310     $ 46,993  
Capital lease obligations   4,594     1,144  
Senior Notes, net   73,253      
Accounts payable and accrued expenses   14,457     10,453  
Total current liabilities   152,614     58,590  
Non-current liabilities        
Bank loans, net   621,179     576,967  
Capital lease obligations   69,229     17,747  
Senior Notes, net       72,726  
Total non-current liabilities   690,408     667,440  
Total liabilities   843,022     726,030  
Shareholders’ equity        
Preferred shares, $0.01 par value; 50,000,000 shares authorized; no shares issued or outstanding        
Common shares, $0.01 par value per share; authorized 212,500,000 shares; issued and outstanding 71,217,258 and 74,902,364 shares as of December 31, 2018 and December 31, 2017, respectively   796     762  
Paid-in capital   1,747,648     1,745,844  
Common shares held in treasury, at cost; 8,567,846 and 1,465,448 shares at December 31, 2018 and December 31, 2017, respectively   (56,720 )   (11,004 )
Accumulated deficit   (830,920 )   (818,222 )
Total shareholders’ equity   860,804     917,380  
Total liabilities and shareholders’ equity   $ 1,703,826     $ 1,643,410  


Scorpio Bulkers Inc. and Subsidiaries
Statements of Cash Flows (unaudited)
(Amounts in thousands)

    Year Ended December 31,
    2018   2017
Operating activities        
Net loss   $ (12,698 )   $ (59,726 )
Adjustment to reconcile net loss to net cash used by        
operating activities:        
Restricted share amortization   7,881     12,645  
Vessel depreciation   56,607     48,510  
Amortization of deferred financing costs   9,582     6,085  
Write-off of deferred financing costs       470  
Loss / write-down on assets held for sale       16,471  
Net unrealized losses on investments   7,719      
Changes in operating assets and liabilities:        
Decrease in accounts receivable   (2,356 )   (882 )
Increase (decrease) in prepaid expenses and other assets   250     (4,032 )
Increase in accounts payable and accrued expenses   4,002     41  
Net cash provided by operating activities   70,987     19,582  
Investing activities        
Equity investment   (100,000 )    
Proceeds from sale of assets held for sale       44,340  
Scrubber payments   (1,235 )    
Payments for vessels and vessels under construction   (21,799 )   (217,033 )
Net cash used in investing activities   (123,034 )   (172,693 )
Financing activities        
Proceeds from issuance of long-term debt   469,225     287,554  
Repayments of long-term debt   (358,858 )   (153,003 )
Common shares repurchased   (45,716 )   (11,004 )
Dividend paid   (6,042 )   (1,509 )
Debt issue costs paid   (7,602 )   (2,126 )
Net cash provided by financing activities   51,007     119,912  
Decrease in cash and cash equivalents   (1,040 )   (33,199 )
Cash at cash equivalents, beginning of period   68,535     101,734  
Cash and cash equivalents, end of period   $ 67,495     $ 68,535  


Scorpio Bulkers Inc. and Subsidiaries
Other Operating Data (unaudited)

    Three Months Ended
December 31,
  Year Ended December 31,
    2018   2017   2018   2017
Time charter equivalent revenue ($000’s) (1):                
Vessel revenue   $ 65,171     $ 51,127     $ 242,502     $ 162,205  
Voyage expenses   (177 )   (97 )   (549 )   (429 )
Time charter equivalent revenue   $ 64,994     $ 51,030     $ 241,953     $ 161,776  
Time charter equivalent revenue attributable to:                
Kamsarmax   $ 22,640     $ 20,811     $ 87,086     $ 67,525  
Ultramax   42,354     30,219     154,867     94,251  
    $ 64,994     $ 51,030     $ 241,953     $ 161,776  
Revenue days:                
Kamsarmax   1,722     1,651     6,634     6,718  
Ultramax   3,468     2,776     13,795     10,291  
Combined   5,190     4,427     20,429     17,009  
TCE per revenue day (1):                
Kamsarmax   $ 13,148     $ 12,605     $ 13,127     $ 10,051  
Ultramax   $ 12,213     $ 10,886     $ 11,226     $ 9,159  
Combined   $ 12,523     $ 11,527     $ 11,844     $ 9,511  

(1) The Company defines Time Charter Equivalent (TCE) revenue as vessel revenues less voyage expenses.  Such TCE revenue, divided by the number of the Company’s available days during the period, or revenue days, is TCE per revenue day, which is consistent with industry standards.  TCE per revenue day is a common shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charter hire rates for vessels on voyage charters are generally not expressed in per-day amounts while charter hire rates for vessels on time charters generally are expressed in such amounts.

The Company reports TCE revenue, a non-GAAP financial measure, because (i) the Company believes it provides additional meaningful information in conjunction with vessel revenues and voyage expenses, the most directly comparable U.S.-GAAP measure, (ii) it assists the Company’s management in making decisions regarding the deployment and use of its vessels and in evaluating their financial performance, (iii) it is a standard shipping industry performance measure used primarily to compare period-to-period changes in a shipping company’s performance irrespective of changes in the mix of charter types (i.e., spot charters, time charters and bareboat charters) under which the vessels may be employed between the periods, and (iv) the Company believes that it presents useful information to investors. See Non-GAAP Financial Measures.


Fleet List as of January 25, 2019

Vessel Name   Year Built    DWT    Vessel Type
SBI Samba   2015   84,000     Kamsarmax
SBI Rumba   2015   84,000     Kamsarmax
SBI Capoeira   2015   82,000     Kamsarmax
SBI Electra   2015   82,000     Kamsarmax
SBI Carioca   2015   82,000     Kamsarmax
SBI Conga   2015   82,000     Kamsarmax
SBI Flamenco   2015   82,000     Kamsarmax
SBI Bolero   2015   82,000     Kamsarmax
SBI Sousta   2016   82,000     Kamsarmax
SBI Rock   2016   82,000     Kamsarmax
SBI Lambada   2016   82,000     Kamsarmax
SBI Reggae   2016   82,000     Kamsarmax
SBI Zumba   2016   82,000     Kamsarmax
SBI Macarena   2016   82,000     Kamsarmax
SBI Parapara   2017   82,000     Kamsarmax
SBI Mazurka   2017   82,000     Kamsarmax
SBI Swing   2017   82,000     Kamsarmax
SBI Jive   2017   82,000     Kamsarmax
SBI Lynx   2018   82,000     Kamsarmax
Total Kamsarmax       1,562,000      
             
SBI Antares   2015   61,000     Ultramax
SBI Athena   2015   64,000     Ultramax
SBI Bravo   2015   61,000     Ultramax
SBI Leo   2015   61,000     Ultramax
SBI Echo   2015   61,000     Ultramax
SBI Lyra   2015   61,000     Ultramax
SBI Tango   2015   61,000     Ultramax
SBI Maia   2015   61,000     Ultramax
SBI Hydra   2015   61,000     Ultramax
SBI Subaru   2015   61,000     Ultramax
SBI Pegasus   2015   64,000     Ultramax
SBI Ursa   2015   61,000     Ultramax
SBI Thalia   2015   64,000     Ultramax
SBI Cronos   2015   61,000     Ultramax
SBI Orion   2015   64,000     Ultramax
SBI Achilles   2016   61,000     Ultramax
SBI Hercules   2016   64,000     Ultramax
SBI Perseus   2016   64,000     Ultramax
SBI Hermes   2016   61,000     Ultramax
SBI Zeus   2016   60,200     Ultramax
SBI Hera   2016   60,200     Ultramax
SBI Hyperion   2016   61,000     Ultramax
SBI Tethys   2016   61,000     Ultramax
SBI Phoebe   2016   64,000     Ultramax
SBI Poseidon   2016   60,200     Ultramax
SBI Apollo   2016   60,200     Ultramax
SBI Samson   2017   64,000     Ultramax
SBI Phoenix   2017   64,000     Ultramax
SBI Gemini   2015   64,000     Ultramax
SBI Libra   2017   64,000     Ultramax
SBI Puma   2014   64,000     Ultramax
SBI Jaguar   2014   64,000     Ultramax
SBI Cougar   2015   64,000     Ultramax
SBI Aries   2015   64,000     Ultramax
SBI Taurus   2015   64,000     Ultramax
SBI Pisces   2016   64,000     Ultramax
SBI Virgo   2017   64,000     Ultramax
Total Ultramax       2,307,800      
Total Owned or Finance Leased Vessels DWT   3,869,800      

Time chartered-in vessels

The Company currently time charters-in one Ultramax vessel. The terms of the contract are summarized as follows:

Vessel Type   Year Built   DWT   Country of Build   Daily Base Rate   Earliest Expiry
Ultramax   2017   62,100     Japan   $ 10,125     30-Sep-19   (1)
Total TC DWT       62,100                  

(1) This vessel is time chartered-in for 22 to 24 months at the Company’s option at $10,125 per day. The Company has the option to extend this time charter for one year at $10,885 per day. The vessel was delivered to the Company in September 2017.

Conference Call on Results:

A conference call to discuss the Company’s results will be held today, January 28, 2019, at 11:00 AM Eastern Standard Time / 5:00 PM Central European Time.  Those wishing to listen to the call should dial 1 (866) 219-5268 (U.S.) or 1 (703) 736-7424 (International) at least 10 minutes prior to the start of the call to ensure connection. The conference participant passcode is 5951238.

There will also be a simultaneous live webcast over the internet, through the Scorpio Bulkers Inc. website www.scorpiobulkers.com.  Participants to the live webcast should register on the website approximately 10 minutes prior to the start of the webcast.

Webcast URL: https://edge.media-server.com/m6/p/cv278uhs

About Scorpio Bulkers Inc.

Scorpio Bulkers Inc. is a provider of marine transportation of dry bulk commodities.  Scorpio Bulkers Inc. has an operating fleet of 57 vessels consisting of 56 wholly-owned or finance leased dry bulk vessels (including 19 Kamsarmax vessels and 37 Ultramax vessels), and one time chartered-in Ultramax vessel. The Company’s owned and finance leased fleet has a total carrying capacity of approximately 3.9 million dwt and all of the Company’s owned vessels have carrying capacities of greater than 60,000 dwt. Additional information about the Company is available on the Company’s website www.scorpiobulkers.com, which is not a part of this press release.

Non-GAAP Financial Measures

To supplement the Company’s financial information presented in accordance with accounting principles generally accepted in the U.S., (“GAAP”), management uses certain “non-GAAP financial measures” as such term is defined in Regulation G promulgated by the SEC. Generally, a non-GAAP financial measure is a numerical measure of a company’s operating performance, financial position or cash flows that excludes or includes amounts that are included in, or excluded from, the most directly comparable measure calculated and presented in accordance with GAAP. Management believes the presentation of these measures provides investors with greater transparency and supplemental data relating to the Company’s financial condition and results of operations, and therefore a more complete understanding of factors affecting its business than GAAP measures alone. In addition, management believes the presentation of these matters is useful to investors for period-to-period comparison of results as the items may reflect certain unique and/or non-operating items such as asset sales, write-offs, contract termination costs or items outside of management’s control.

Earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted net loss and related per share amounts, as well as adjusted EBITDA and TCE Revenue are non-GAAP performance measures that the Company believes provide investors with a means of evaluating and understanding how the Company’s management evaluates the Company’s operating performance.  These non-GAAP financial measures should not be considered in isolation from, as substitutes for, nor superior to financial measures prepared in accordance with GAAP.  Please see below for reconciliations of EBITDA, adjusted net loss and related per share amounts, and adjusted EBITDA.  Please see “Other Operating Data” for a reconciliation of TCE revenue.

EBITDA (unaudited)

  Three Months Ended
December 31,
  Year Ended December 31,
In thousands 2018   2017   2018   2017
Net loss $ (7,373 )   (1,068 )   $ (12,698 )   $ (59,726 )
Add Back:              
Net interest expense 10,907     7,107     39,180     27,307  
Depreciation and amortization (1) 19,769     16,903     74,070     67,710  
EBITDA $ 23,303     22,942     $ 100,552     $ 35,291  

(1) Includes depreciation, amortization of deferred financing costs and restricted share amortization.

Adjusted net loss (unaudited)

    Year Ended December 31,
In thousands, except per share data   2017
    Amount   Per share
Net loss   $ (59,726 )   $ (0.83 )
Adjustments:        
Loss / write down on assets held for sale   17,701     0.25  
Write down of deferred financing cost   470     0.01  
Total adjustments   $ 18,171     $ 0.26  
Adjusted net loss   $ (41,555 )   $ (0.57 )

Adjusted EBITDA (unaudited)

    Year Ended December 31,
In thousands   2017
Net loss   $ (59,726 )
Impact of adjustments   18,171  
Adjusted net loss   (41,555 )
Add Back:    
Net interest expense   27,307  
Depreciation and amortization (1)   67,710  
Adjusted EBITDA   $ 53,462  

 (1) Includes depreciation, amortization of deferred financing costs and restricted share amortization.

Forward-Looking Statements

Matters discussed in this press release may constitute forward-looking statements.  The Private Securities Litigation Reform Act of 1995 provides safe harbor protections for forward-looking statements in order to encourage companies to provide prospective information about their business. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements, which are other than statements of historical facts. The Company desires to take advantage of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and is including this cautionary statement in connection with this safe harbor legislation. The words “believe,” “anticipate,” “intend,” “estimate,” “forecast,” “project,” “plan,” “potential,” “may,” “should,” “expect,” “pending” and similar expressions identify forward-looking statements.

The forward-looking statements in this press release are based upon various assumptions, many of which are based, in turn, upon further assumptions, including without limitation, our management’s examination of historical operating trends, data contained in our records and other data available from third parties. Although we believe that these assumptions were reasonable when made, because these assumptions are inherently subject to significant uncertainties and contingencies which are difficult or impossible to predict and are beyond our control, we cannot assure you that we will achieve or accomplish these expectations, beliefs or projections.

In addition to these important factors, other important factors that, in our view, could cause actual results to differ materially from those discussed in the forward-looking statements include the failure of counterparties to fully perform their contracts with us, the strength of world economies and currencies, general market conditions, including fluctuations in charter rates and vessel values, changes in demand for dry bulk vessel capacity, changes in our operating expenses, including bunker prices, drydocking and insurance costs, the market for our vessels, availability of financing and refinancing, charter counterparty performance, ability to obtain financing and comply with covenants in such financing arrangements, changes in governmental rules and regulations or actions taken by regulatory authorities, potential liability from pending or future litigation, general domestic and international political conditions, potential disruption of shipping routes due to accidents or political events, vessels breakdowns and instances of off-hires and other factors.  Please see our filings with the Securities and Exchange Commission for a more complete discussion of these and other risks and uncertainties.

Contact:

Scorpio Bulkers Inc.
+377-9798-5715 (Monaco)
+1-646-432-1675 (New York)