EDRY - Eagle Bulk: Midsize Dry Bulk Market Update (Podcast Transcript)

Summary

• Value Investor's Edge Live returns in 2023 with an exclusive interview focused on the dry bulk segment of the shipping industry.
• Gary Vogel, CEO of Eagle Bulk, joined us on 17 January 2023, to discuss the latest trends in the market along with specific company strategy and capital allocation priorities.
• We reviewed the impacts from the conflict in Ukraine and the expected demand surge from China reopening into 2023.
• Capital allocation: Additional bolt-on acquisitions along with potential convertible bond repurchases. Dividend payout levels will depend on market conditions in 2023.
• A full audio recording (with time-stamps) is attached along with a transcript.

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Gary Vogel, CEO of Eagle Bulk ( EGLE ), joined J Mintzmyer on Value Investor's Edge Live on Jan. 17, 2023, to discuss the dry bulk markets, upcoming catalysts, company strategy, and capital allocation plans. Eagle Bulk is a major US-listed dry bulk shipping company with an on-the-water fleet of 54 vessels. EGLE was a strong dividend payer in 2022 along with impressive market rates and has been able to consistently outperform market averages due to a superior fleet profile and chartering strategy.

This interview and discussion is relevant for anyone with dry bulk investments or interest in the overall sector, including Diana Shipping ( DSX ), EuroDry ( EDRY ), Genco Shipping ( GNK ), Golden Ocean ( GOGL ), Navios Maritime Partners ( NMM ), Pangaea Logistics ( PANL ), Safe Bulkers ( SB ), Seanergy Maritime ( SHIP ), and Star Bulk Carriers ( SBLK ).

Topics Covered

• (0:00) Intro/Disclosures
• (1:45) Update on the current midsize dry bulk markets.
• (4:15) Remaining impacts from the Russian invasion of Ukraine?
• (6:00) Expected impacts from China’s reopening in 2023?
• (7:45) Disconnect between bullish narrative and lackluster FFA markets?
• (10:15) Why not buy FFAs directly if bullish? Update on hedging strategy?
• (15:00) What are the biggest risk factors for the midsize bulk markets?
• (17:45) Appetite for repurchases to benefit from stock discount?
• (20:15) Commentary on convertible bonds, how to resolve?
• (23:15) Appetite for more bolt-on fleet additions?
• (25:15) Current profit contribution from scrubber spreads?
• (28:45) Dividend plans in 2023? Will it decrease now that rates are lower?
• (31:45) How to balance fleet growth versus discounted share repurchases?
• (34:15) Why should investors buy EGLE vs. other dry bulk firms?

Full Interview Transcript

J Mintzmyer: Good morning, everyone. Good afternoon if you're joining us from Europe. We're hosting another exclusive interview at Value Investor's Edge, hosting the CEO of Eagle Bulk, Gary Vogel, who's going to join us today to talk about the midsized dry bulk markets as well as Eagle Bulk's strategy into 2023. We're recording on the morning of January 17, 2023 about 10am Eastern Time. As a reminder, nothing on the call today constitutes official company guidance or investment recommendations of any sort.

I have no current position in Eagle, stock symbol ( EGLE ); however, if you're listening to a recording or reading a transcript at a later date, please be advised these positions may have been updated.

Good morning, Gary. Thank you very much for joining us today.

Gary Vogel: Good morning, J good to be with you, and Happy New Year.

JM: Happy New Year to you as well, and it's always great to chat about the markets with you. I want to jump right into it. You're here today as the expert in the midsize dry bulk market. You know, 2021 was a fantastic market. 2022 started off really strong and the last six months have been pretty challenging. What's the latest update on the market and how are you feeling about things heading into 2023?

GV: Yes, well - look, I think it's important to pull back a little bit and look, and no doubt our markets peaked during the second quarter and kind of worked their way down. Having said that, the Q4 market averaged $15,000 for the Supramax Index and it's worth mentioning that the Supramax Index, the BSI, is based on a 58,000 deadweight ship, now more than half our ships are Ultramaxes. We also have over 90% of our fleet fitted with scrubbers, and we deploy an active management strategy.

So you know, although the market came off its very lofty highs, you know, the $15,000 average in Q4, especially coming from a higher number, is not exactly the most challenging environment that I've experienced being, you know, 34 years in dry bulk. So where we are today, clearly it's January, we're less than a week before the Chinese New Year. So not surprising we're in a weak environment. Having said that, last year with these weaker numbers and I'll put that in quotes and why I think weaker really not surprising.

It's the second time since 2000. So in 22 years, we've only had two years where dry bulk demand didn't grow on a ton mile basis. The last time was during the financial crisis, really based on a drying up of trade credit. And then last year and this past year, we had negative ton mile growth, around a little over 1% contraction. Not really surprising given that we had China in significant lockdowns. Our growth came in about half of what was expected at the beginning of the year. We have a war in Europe, of course, Russia/Ukraine.

And then on top of it, we've had significant tightening in monetary policy globally. So when you look at all those things, I think the markets held up remarkably well, and I think it speaks to, you know, really the constraint on the supply side.

JM: Yes, thanks, Gary. I'm really glad you brought up China and you also mentioned Ukraine, because those are just, I think, great places for us to do some follow-ups. Let's talk about Ukraine first. That's obviously been a crisis the last year after the Russia's invasion last February. I know, grain shipments have been disrupted. There's been sort of a truce as it were for those grain shipments, but I know there's still been a lot of uncertainty. How has that impacted the market last year and is there a chance that's going to be different here in '23?

GV: Yes so, you know, aside from a humanitarian crisis that this poses, you know, grain shipments we're down about two-thirds. And so one of the reasons is, we had effectively the first two months normal grain shipments and then of course you know February is when the war started. You know fortunately, this grain carter, this agreement has really helped in a meaningful way. But again, we still lost two-thirds of shipments. A lot of that is expected to be - well, first of all, hopefully a continuation of exports of grain, although they've mostly moved on older and smaller ships.

But our expectation is that grain will grow by about 3% next year or this year, excuse me, we're now in '23. I got to get used to saying that, but that we think grain will grow - grain volumes will grow this year partly, because we think China reopening and demand for soybeans, including restocking on inventory, but also there's been planting going on elsewhere and we expect a record crop in Brazil. So you know, positives for grain overall is that - again plus you know around 3% this year, which is meaningful for one of the major bulks, especially an important one for Eagle Bulk.

JM: Yes certainly, certainly a change. I mean, going from a clear headwind last year into what seems like a high likelihood of a tailwind in '23 so that's optimistic, that's good to see. What about China's reopening can you expand upon that a little bit more? Are you expecting to see additional cargoes in coal and iron ore or is this primarily a grain and soybean story?

GV: No - absolutely, it's positive with the headline China reopening can only be seen as positive. Having said that, we have to be realistic as to what's going on. And of course, we see headlines or I should say, maybe slowly news, you know, and data coming out of China, but as you know, not surprising, you know significant, you know COVID outbreak given the immediate overnight, you know, opening and lifting of restriction. So you know, China reopening is really positive, but it's not going to be an immediate you know light switch.

And so, you know, we think this is going to be really a great story for dry bulk as China comes back. I mean China's 40% percent of total dry bulk demand globally. And as I mentioned, growth was expected to be almost double where it came in last year. So that's got to be really positive. The question I think more is how quickly that happens. And yes, we think there'll be a restocking of not just soybeans, but you know, minor bulks in general - and thermal coal as well.

JM: Yes, the logic of what you're saying, Gary, makes sense. And I had a similar personal reaction to China reopening and you know, looking at the trade flows, it certainly makes sense. However, if you look at the dry bulk FFA markets, especially the [Cal 23s], you can look at different sizes. Capesize are the most pronounced, but you can look at basically all the sizes. And you see this peaking last April or May, right, of '22?

And since then, yes, we had a little bit of a bump when China reopened and announced all that stuff, but those FFAs are really depressed. What do you think is holding those back? What's the, disconnect between kind of the bullish narrative that you and I are talking about versus the sort of subdued mediocre narrative that the FFA markets are showing?

GV: Yes well, first of all, I've been trading FFA is now since the BSI came into, you know, being or at that time was the [antimax index] over 20 years. And one thing for sure is that, you know, the forward curve is a bad predictor ultimately of where rates end up. And I think you don't have go back very far, you know, to see that. You know one of the, you know, reasons right now it's hard to see when that demand comes and we're in a very weak environment. Having said that, the BSI, the strip, as we call it, the Q2 through Q4, is trading around 14,000 now significantly positive to where it is today.

And I think you'll see that continue to improve on the other side of Chinese New Year. So again, I wouldn't - put too much into where it is. It's often, you know, it lags on the upside and even same on the downside, right? People, you know, they tend not to get this enough momentum ahead of time and then they're slow to correct. So, we're very constructive and the biggest reason is, as I've said, notwithstanding those headwinds last year, you know, the market overall, you know, did quite well.

And what we're looking at on a macro basis, right, is historically low order book, you know, at just over 7% and a rapidly aging fleet. I mean, we really haven't had scrapping you got to go all the way back to 2016 when we had kind of normalized scrapping. And last year, only nine midsized geared ships were scrapped last year that's out of a fleet of 4,000. And so, we've had almost no scrapping and real discipline on the supply side. So we think when we get growth back against this supply side market, you know, it's really, really, you know, strong, you know, combination and I think it's going to be reflected in the rates.

JM: Yes again, it certainly makes sense, Gary. And I have a similar view. I don't have the same FFA trading background that you have, but I've seen a similar thing in the lack of prediction of the FFAs. They seem to always be a little bear biased as well and I imagine that's due to hedging and that sort of thing. One of the retorts I get though, and I think it's a good comeback from, you know, investors or folks who are skeptical when you know, I might say, hey, you know, the outlooks - bullish, but the FFAs are bearish. People say, well, if it's that easy, then why don't we just buy FFAs why just trade those? Any commentary on that, Gary, is there any interest in Eagle expand on that?

GV: Sure, yes, absolutely. I mean first of all, we as Eagle, we don't just go ahead and buy FFAs. We have a very strict policy that our use of derivatives is hedging physical assets always against the name physical asset. And with now 54 ships pro forma for the acquisition we announced about a week or so ago, we're naturally very long-term market even with cargo. So our natural position is to sell FFAs, so we can't just go and buy it.

Having said that, we do charter in ships and we like that also, because it gives us optionality for the same reason we don't like to relet our ships on time charter where you're giving away significant optionality in terms of the actual period in which the charter can redeliver the ship. We like to be on the other side of that, you know, as we like to say pretty simple options, you know good to get, bad to give. And so, we do charter in ships, but we're not buyers of the FAA market.

We just have a very strict a requirement that we have a physical asset and needs to be a hedge. Having said that, I'll just add I think you know this, but we're not shy about actively, you know, unwinding those hedges and putting them back on. So although, we don't take what we call a negative derivative position to the market, if we think that the FFA market if we put a hedge on and when we think that market is dislocated and then cheap, we may buyback that hedge. And leave the asset unhedged for a moment and then put it back on as there is volatility and dislocation between the physical and the derivative markets.

JM: Yes, certainly makes sense, Gary. Thanks for that. And I was going to follow-up on this later, but since we're already on the topic of FFAs, you had about 25% of your fleet hedged previously during the stronger markets. And of course and hindsight, you know, it was disappointing because the market was so strong even though the hedge was good. You talked about you're interested in unwinding when that looks attractive. Can you just provide any sort of update on your current strategy, your current positioning of the company in those markets?

GV: Yes, so look, I can't speak to specific positions if you look back the last time we disclosed our FFA position was September 30th, and at that time we had sold 22 contracts, I believe it was, you know, we had 22 contracts as of Sep 30 for December 3, which is you know, a pretty meaningful part, you know, part of our of our fleet. And we had bought back 14 of those. It's all in our Q. So we had eight open positions as of that time and the average was 22,000. And as I mentioned earlier, on this call, the market average 15.

So obviously, those at that time we were in the money, but I can't speak to how we may have traded them, but, you know, not surprising with a weaker FFA market, you know, now around 14,000 for Q2, Q3 and Q4 this year, we're not very excited about selling that market in a meaningful way. When we sold the '22 market, it was in a much different environment. And again, all of these numbers are to BSI without things like scrubber benefit and our overall position and things like that.

So, you know, without again, I can't get into specifics it's fair to say that, you know, we're going to be more active in hedging and locking in revenue streams in a higher market environment than in a lower one. Having said that obviously, if we were negative to the market, we might be more aggressive, but I've already said, we are constructive to this market and January is historically the weakest month of the year, so we're not that surprised about where we are. And I'm sure you'll get to the balance sheet, but I'll bring you there really quickly.

As of Sep 30, we had almost $200 million of cash and $100 million undrawn revolver. So, you know, this weakness in the market, you know, while I'd rather be sitting here and talking here in a $25,000 day market in January, you know, we're comfortable, very comfortable where we are and we see there's an opportunity here for us to buy quality Ultramax tonnage at significant discount to where it was just six months ago.

JM: Yes, thanks, Gary. And before we get to the balance sheet and a little bit more capital allocation nuanced. I did wanted to ask, we have such a bullish narrative here, and you know, I think a lot of folks are in alignment with that, especially if we look forward to middle of the year, later in the year, right, once we get past this core seasonality. But what are the risk factors what are the biggest concerns about 2023? What could cause this to be a poor, if not terribly?

GV: You know look, I think the macro environment, you know, geopolitical risk and the overall macroeconomic environment. Supply is really baked for the next two and a half years that you'll see some orders for '25 still, but in Japan, you're looking at 2026. And although prices have come down a bit, they're still expensive and of course, cost of debt today is a lot different than it was just 12 months ago. So I think it's really on the demand side, and I think that's again, speaks to, you know, geopolitical and macroeconomics.

And so, you know, everyone, of course, has to will have their own view as to where we are there. But last year was pretty negative for dry bulk and in terms of the demand side of things and I think the market held up relatively well. And I spoke to the fact that we just haven't had scrapping, for some reason this market were to stay weak for the next six months. I think you'd see a significant supply side response in terms of dry bulk ship scrapping, which of course will be good on the supply side.

But as it stands today, you know, the - age of our fleet of the - you know, the dry bulk Handymax fleet is almost 11 and a half years, and you got to go back all the way to 2009 since the last time it was at that level. And at that time, you know, the order book was over 75% of the on the water fleet, and today it's 7. So could we have a choppy Q1 into Q2? Yes, I think that's given all of the exogenous factors going on right now? Yes, but - if you pullback, you know the supply side and the lack of scrapping and the fact that we've had 20 years of ton mile demand growth in dry bulk, I think it bodes really well for this market.

JM: Yes, we'll certainly hope for more optimistic outcomes, it's just you know, obviously, remains to be determined, and we'll have to see how things shake out. It is interesting to see, of course, China reopening the grain shipments looking to turn into a tailwind. And yet if you look at the rates, if you look at the FFAs, folks are way more bearish now than they were last April or May. So that - it's just a very interesting dichotomy and we'll have to see how that turns out. You mentioned the strong balance sheet and a huge cash provision?

I certainly agree with that. Despite that - despite that strong balance sheet, you trade at a discount to NAV at this point. And that's despite having a fleet that has a high proportion of scrubbers, very strong corporate governance, a history of shareholder returns, right there's all these positive factors and yet there's still a discount in the shares. Is there any potential for repurchase here to close that gap or any other sort of way to accretively deploy capital?

GV: Yes, so, I think you are aware we bought back 10 million phase value of our convert towards the end of last year, and so I think that speaks to our willingness. We have a share buyback authorization, but given that the covert is selling the money, we really see [indiscernible] the convert as kind of a quasi-share repurchase.

I mean at some point between now and the maturity which is in the middle of 2024, you know we’re either going to have to issue shares on the convert or write a check or a combination of both, you know in terms of redeeming those, and so to the extent we can reduce that liability through covert buyback opportunistically we have done it in the past and we definitely are always looking at it. You know the one we did it last time our shares, it was a moment of weakness, if you will, and the shares were trading in the low 40s.

So, we opportunistically did that. And so, and we'll continue to look for those opportunities. Having said that, putting cash on the balance sheet for that ultimate redemption we think makes sense. It also gives us optionality in terms of acquiring assets as we continue to do. So, as I spoke about our constructive view of the market, I mean, we already mentioned it or spoke about it briefly, but we've acquired a couple of Ultramaxes over the last few months. The last one just announced a couple of weeks ago.

So, we're walking the walk. In terms of that, we believe in the fundamentals of this market and which is why we're going to continue to add modern and in particular scrubber fitted tonnage when we can, you know to the Eagle Fleet because we think this is a bit of a momentary thing and that ultimately the fundamentals are going to prove to be, you know, really positive for the for the market.

JM: I'm glad you mentioned the convertibles Gary because that's something we closely watched and it seems like that's a potential for a win-win because you're both eliminating future dilution at a point, which could be below NAV, and at the same time, you're buying back debt, right? So, it's not just, you know, it's deleveraging and eliminating some dilution. Is there potential for more of those? Could we see some sort of resolution? Because it seems like right now those convertibles, and I know we've talked about this in the past, Gary, but it seems like these convertibles are still, kind of an overhang.

GV: Yeah, I mean, to what extent, you know, an overhang, you know, it's up to individuals. I think our shares perform very well relative to the peer group and especially on a TSR basis. Having said that, it's another point of discussion, right? If we didn't have a convert, we wouldn't be spending time on this call right now. You know, speaking about it. So, you know, that in of itself, I think, you know, speaks to it. Yeah, there's definitely a possibility that we'll do more and maybe something larger. Having said that, I think the last time we spoke about it, I mentioned we may do something and then we did the 10 million.

So, it's going to have to be, you know, watch this space, but it's definitely a possibility. And as I said, you know, the benefit of, if we don't do something by having cash on the balance sheet, we always have the ability to do so and ultimately, you know, add maturity, and you know, you always have to pay, you know, some premium and especially with more time based on the option value there.

So that goes away over time as you get closer to maturity. So, even if we don't do it now by stockpiling cash on the balance sheet, I think it speaks to our ability to do so. And as you said, you know, at the time of execution, which could be at maturity, you know, if we're trading at a discount to NAV and using cash is accretive and something that we would look to do if not in full, then in a meaningful part.

JM: Yeah. That’s certainly helpful and optimistic to know that you have the option to just pay those down in cash because I think folks are worried about if there'd be a dilution and it's one of those things where I understand why you had the convertible in the first place, right? It was attractively priced debt. It made sense at the time. But the wind up of those is always a little bumpy. I mean, Scorpio Tankers is going through their own little bump in a road with their convertibles. And there's always a trading mess around those things. I realize the purpose of them, but there's always a little bit of mess at the end.

GV: Yeah. Look, I mean, no question. If we go back though at the time, equity, we were looking to acquire scrubber fitted Ultramaxes in 2019. And equity, even if we could have done, it would have been incredibly dilutive and at a big discount. And we just weren't willing to lever up the company to the point where we had to. So, the converts played it, you know, they were the right tool at the right time. But, you know, we're now, you know, 3.5 years into it and as you said, you know, at some point, you know, it's going to have to be, it will be taken out. It's just a question of how and when.

JM: Certainly. You had a couple of very interesting acquisitions recently. I guess you'd call them bolt-on deals. You added two ships recently. Is your potential for more than two here or how many potentially might Eagle be interested in?

GV: Yeah. The answer is, absolutely. I think over the last number of years, we've acquired 31 ships and sold 20 vessels are older ships. You know, we now all have only one ship that's older than 14 years old, which is shipped that's almost 18 years old and as we've spoken before will likely be sold before our next statutory drydock. So, we're now in a position although fleet renewal is never there because ships keep getting older.

We don't have any pressure on the rest of our fleet other than that one ship. And when I say pressure, self-imposed, we simply believe that in general we want to operate ships up to 15 years, but we don't have any other vessels that we need to do anything. So, unlike before when we're referring three ships we brought in when we're selling two, now as we acquire ships, we'll be able to grow this business and I think there's benefits to scale that we've spoken about before on the capital markets side, as well as on the balance sheet side and operationally.

So, we will look to acquire, continue to acquire ships. If we can do them in multiple groups, that's great, but if not, we've demonstrated, we're happy to do them one at a time if we need to. We're not going to pay a premium for a group of ships, but, you know, and we just don't think there's real value in that. So, if we have to acquire them one at a time, we will. And the other benefit of doing that is, you know, cost averaging, right? And that is not trying to exactly time the market, but buying ships over.

So, I'm not going to put a number out there, but I think our balance sheet shows that we have the capacity and you combine that with our constructive view of the market and I think it's fair to say that you'll see us continue to add modern Ultramaxes, particularly – ideally scrubber fitted to when we can acquire them, you know, between kind of 2 and 6 years old, 2 and 7 years old.

JM: Certainly how does the scrubber play into that? What sort of, because my understanding is the current spread is around 200 and 220 something around there, how does a scrubber fitted vessel differentiate itself in terms of, like, savings per day?

GV: Yeah. It's pretty straightforward and it's really a separate calculation. So, it's not that we think that only, you know, scrubber fitted ships are good and without a bad at all, but it's a separate piece of equipment and separate income stream, which is nice because aside from the positive value in a weak environment, it de-risks your breakeven. Because as I said, it's a separate income stream.

So, you know, the spot right now is just under 200, you know, which is around $2,800, $2,900 per day on a Supramax or an Ultramax. You know, the forward curve is a bit weaker at about 140, but still that represents around $33 million of EBITDA and net income additional outside of basic ship earnings.

So, right now as I said around $2,800 per day, and in 2022, the spread average just [239] [ph] actually, and that equates to [indiscernible] basis around $57 million of incremental revenue for Eagle Bulk on an investment of just over $100 million. So the scrubber investment has really shown its strength in 2022 and even in the current environment, something like $33 million or sorry, $45 million on that investment on our follow-up year is quite demonstrative. So, we’re very comfortable and pleased with that investment decision.

JM: Yeah. Certainly. It's hard to, it's hard to overstate how accretive that investment has been and it’s just such a layup. So, I'm glad you did that and it's certainly interesting going forward. I'm personally surprised that the spreads have hung out this high. I mean, we're – my latest quote on a big 4 [indiscernible] was 220 spread, $220 per ton. And, you know, I was bullish on Scrubbers, but I am shocked to see the spread above 200. Do you have any broad thoughts on that spread? Is there anything driving that? Any sort of insights or just kind of price takers at this point?

GV: Well, we have locked in those spreads at times, right now, not too similar to the FFA market. We think it's a little – it's over [backwardated] [ph]. And part of part of it, our view for that is because there's a high correlation between underlying crude pricing and spreads. And if you look at our investment presentations or earnings deck, you'll see we overlay the spread against, you know, underlying, you know, brand crude, and you can see how closely or how high the correlation is.

And so, we think there's a lot of reasons why energy prices will likely increase with China reopening, and that's why we're definitely not looking to lock in spreads at the forward backwardated numbers. We think the spot numbers are good value. And again, spot equates to around $45 million on an annualized basis for Eagle Bulk.

JM: Certainly makes sense. One thing I should – I probably should've brought this up earlier, because I know a lot of folks in the call are interested in and I know people have listen to the reporting later and transcript as well. Let's talk about this dividend, right? It's a variable dividend. You started off with around a 30% payout target. You've held it fairly flat throughout 2022, very strong, very strong payouts.

However, right, the market's lower. That goes without saying that Q4 results are going to be weaker. It doesn't take a genius to figure that out. Q1's probably going to be even weaker yet. What's going on with the dividend here? It's variable, right? Is there any potential to, sort of stabilize that thing or is the dividend coming off pretty big?

GV: Yes. So, we – one of the benefits is, we had a long time to figure out what we wanted our dividend policy to be, and as I've said before, it needed to be fairly simple, straightforward, meaningful, and sustainable. Obviously, the variability makes it sustainable. I mean, we clearly, based on the balance sheet have the ability to pay more than the 30% and historically the company has in a couple – I believe in two of the last five quarters did sell, you know. And so having said that, we talked about the use of cash for acquiring assets at significant discounts to where pricing was just six months ago and our constructive view of the market.

Also talked about the use of cash in terms of convert buyback or ultimately convert or let's just call it, convert you know, redemption whether it's, you know, in advance or at maturity. And so, you know, having using the cash, you know, for increasing dividend versus that is a decision that the company and the board ultimately will have to make. But whether it gets paid out in a dividend over and above the 30% in net income or it gets used accretively to buyback convertible shares at a discount, the benefit accrues to the shareholder. And so, our job every day is to make these capital allocation decisions, you know what's the best use of capital.

We're not going to buy ships just to buy ships, but if we think, if we believe it's accretive and beneficial and I'd like to believe our track record of acquisitions is, one which has been beneficial to our shareholders. You know, that's something we have to, you know, charge ourselves with every day. And so, the 30% is a meaningful number. And if we don't believe we have a better use for that capital, then the board may decide to pay more than that. But again, at the moment, I think we've shown that we think there are good uses of capital right now in the form of acquisitions and recently buyback of some of the convert.

JM: Yeah. Certainly makes sense, Gary. And that decision, of course, is up to you and the board, you know, I personally would rather see a repurchase if your stock trades at a discount to NAV than a dividend, especially one that is a return of capital and not just a return on capital, right? There's a key distinction to that. But yeah, your track record has been clear and very successful.

I guess the last question I have on capital allocation is, you've talked about these attractive bolt-on opportunities. You've talked about your track record of creating value from vessels, and that's clear, right? But at the same time, markets are difficult, right? If markets are challenging, you might be faced with a discounted stock price, right? Where the entire fleet as it were is essentially on sale, how do you balance those two between, say, a repurchase at a big discount versus adding ships that you might think are attractive?

GV: Yeah. I mean, again, these are, you know, calculations that we run all the time. We can't just buy back converting shares, right? We're running a company. As I mentioned, the assets obviously continue to age. Having said that, I think we believe we've demonstrated an ability to not just perform at market, but above market with, you know, even less than 50 ships and now we have 54.

So, we make that determination based on where we think the forward market will be and not just operating income, but asset appreciation as well. And I think you don't have to go back that far to the end of 2020 or early 2021. You know, we bought nine ships and the market has moved up very quickly and it wasn't just the operating income, but those ships today, although they're now two years older, are worth significantly more today than they were two years ago. And that's part of the decision process in acquiring ships today as to where we think asset prices are given the low order book and things like inflation and what have you.

So, you know, it's not a simple decision, but we weigh all of those and last quarter that we reported, we did both. We bought back some convert and we acquired assets and we can continue to look to have a balanced approach going forward as well. But it really depends on what the numbers tell us and what our views are on forward markets as well.

JM: Thanks, Gary. That's helpful. And I think it’s always important to have these discussions even though we have them all the time. But I appreciate your time as always coming on our interview and sharing your thoughts on the company. We wish you the best of luck going forward. And of course, we're all hoping for a positive dry bulk market. I'll give the last word to you, Gary. Look, Eagle Bulk is an established company in the U.S. Stock market, but there are several dry bulk companies both on the U.S. and the Oslo markets, why should people invest in Eagle versus one of your many peers?

GV: Yeah. Look, first of all, J, I appreciate, you know, the opportunity to come on and speak to you and always look forward to it. It's always a good conversation. You have some, you know, really good questions and I enjoy the dialogue. And then why Eagle Bulk? You know, we are a different company, we're the only U.S. listed company with a focus exclusively on the midsize segment, which I think over the last few years, has shown its benefit in terms of its performance relative to the other sizes, particularly when you look at it on a capital intensive, how much capital is required per asset?

And then volatility, we have the largest fleet of scrubber fitted midsize ships, globally with almost 90% of our fleet, you know, fitted a commercial strategy of active management that's been able to long-term deliver above index returns. And you mentioned it earlier, you know, strong governance. So, when you put those together, I think you end up with a company that has the ability to deliver value to shareholders and it is that balance and it's not just about dividend or buybacks or what have you, it's about total shareholder return and what we're able to do for shareholders.

And again, I'll leave it at that in our track record. And, you know, we come in every day, looking at, you know, deploy the capital, our shareholders' capital in the best way possible and be a good custodian of that trust. And so, that's why I think Eagle Bulk is a good place for investors, you know, to be as they, you know, invest alongside us in the dry bulk market and in particular the mid-size segment.

JM: Thanks, Gary. Well-argued and it's always great to chat with you. Happy New Year, Gary, and best of luck in 2023!

GV: Thank you, J. Same to you.

JM: This concludes another exclusive interview on Value Investor’s Edge. We just hosted Eagle Bulk CEO, Gary Vogel, to talk about the mid-sized dry bulk market and his company's strategy into 2023. This was recorded on January 17, 2023 at about 10am Eastern Time. As a reminder, nothing on the call today constitutes official company guidance or investment recommendations of any form. I have no current position in EGLE. However, if you're listening to a recording or reading a transcript at a later date, please be advised these positions may have been updated.

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