Eagle Bulk Shipping (EGLE) Q4 2021 Earnings Call Transcript

Eagle Bulk Shipping (EGLE)
Q4 2021 Earnings Call
Mar 04, 2022, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings, and welcome to Eagle Bulk Shipping fourth quarter 2021 results conference call. [Operator instructions] I will now turn the call over to Gary Vogel, chief executive officer; and Frank De Costanzo, chief financial officer of Eagle Bulk Shipping. Mr. Vogel, you may begin.

Gary Vogel -- Chief Executive Officer

Thank you, and good morning. I'd like to welcome everyone to Eagle Bulk's fourth quarter 2021 earnings call. To supplement our remarks today [Audio gap] to access a slide presentation that is available on our website at eagleships.com. Please note that part of our discussion today will include forward-looking statements.

These statements are not guarantees of future performance and are inherently subject to risks and uncertainties. You should not place undue reliance on these forward-looking statements. Please refer to our filings with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties that may have a direct bearing on our operating results, our performance, and our financial condition. Our discussion today also include certain non-GAAP financial measures, including adjusted net income, EBITDA, adjusted EBITDA, and TCE.

Please refer to the appendix in the presentation and our earnings release filed with the Securities and Exchange Commission for more information concerning non-GAAP financial measures and a reconciliation to the most comparable GAAP financial measures. Now please turn to Slide 6. We experienced a strong market during the fourth quarter with the bulk in Supramax index averaging around 30,500. Although, rates were down by 11% from Q3, it represents the second best quarterly index performance since 2009.

On the back of this, eagle generated record results for the quarter, with net income totaling $87 million, or $6.79 per share. In line with our capital allocation objectives, I'm very pleased to report that Eagle's Board of Directors has declared a fourth quarter cash dividend of $2.05 per share, equal to 30% of net income. Since instituting our dividend program this past October, we've now declared cumulative dividends of $4.05 per share over just two quarters. 2021 was truly a phenomenal year for the company, given our active management approach to trading the fleet and our significant operating leverage, we generated a record $185 million of net income for 2021.

The nine vessels which we acquired ahead of the market run up have appreciated by approximately 57%, or $80 million. This, along with our strong operating performance, helped drive significant NAV per share growth in 2021. The robust market, along with our successful execution on both strategic and operational levels, has put us in the strongest financial position in Eagle's history. We estimate our net leverage at just around 25% and total liquidity inclusive of cash and undrawn revolver of $186 million.

Furthermore, a comprehensive refinancing which we executed in October, allowed us to simplify our capital structure, lower our interest costs, and meaningfully extend duration with our bank debt now maturing in 2026. Please turn to Slide 7. Despite the BSI ending the year at 25,188, we were able to achieve a net TCE of $29,407 for Q4, representing a slight increase over the prior period, but an impressive 163% increase over the same period in 2020. Not surprisingly, the market was fairly weak in January and what is typically the weakest seasonal period.

Nonetheless, we have to-date fixed about 95% of our available days for the first quarter of 2022 at a net TCE of $27,200 per day. We're also seeing significant interest in tonnage for the balance of the year at elevated rates. As an example, just this week we fixed the Stockholm Eagle, one of our Ultramax on a TCE at a rate of $36,500 per day for a duration of minimum of five months. These types of fixtures, combined with a forward curve at around $26,500 per day for the balance of the year.  bodes well for Eagle in 2022.

Given the fixed cost nature of our business, we maintain significant operating leverage with essentially all incremental net revenue generated flowing to the bottom line. Please turn to Slide 8. In terms of operating performance, we produced a record $91.6 million of adjusted EBITDA in Q4, which accounts for unrealized mark-to-market gains on our hedges and certain non-cash items related to our financing. Gross EBITDA came in at $108 million, or over $20,000 per vessel.

For the full year 2021, we generated approximately $276 million in adjusted EBITDA. Please turn to slide 9. As alluded to earlier in the call, ship values have increased significantly over the past year, thanks to the rise in both spot and forward rates, which have been driven by improved supply demand fundamentals and forward expectations. It's interesting to note that price strength has occurred on the back of a record number of transactions.

Almost 1,000 dry bulk vessels were bought and sold in 2021, representing about 7.5% of the total on the water fleet. Mid-range Supramax vessels rose by 95% in 2021 to reach $21 million, the highest level since 2010. Although prices came off somewhat in Q4, we're seeing values bid again and trading at or near recent peak levels. We estimate Eagle's currency has appreciated in value by approximately $470 million since the beginning of 2021, equating to $36 per share.

Going forward, I believe there's further upside to values given where second hand ships are priced relative to new buildings and we're spot and forward rates of trading. Please turn to Slide 10. As indicated earlier on the call, we were very active in terms of S&P during 2021. And since we started executing on our fleet growth and renewal strategy back in 2016, we've now completed 49 transactions, acquiring 29 modern ships, and divesting of 20 of our oldest and least efficient ships.

This has resulted in a fleet which is 20% larger today, and 12% more efficient. Our fleet currently totals 53 ships, averaging nine point three years of age, with 89% of those ships fitted with scrubbers. As always, we'll continue to evaluate vessel S&P and M&A deals and look to execute on an opportunistic basis. With that, I would now like to turn the call over to Frank, who will review our financial performance.

Frank De Costanzo -- Chief Financial Officer

Thank you, Gary. Please turn to Slide 12 for a summary of our fourth quarter financial results. The improvement in our TCE rate achieved, and an increase in available days drove our top line growth in Q4. With revenue net of both voyage and charter hire expenses, totaling $149.8 million.

In net income, coming in at $87.5 million, representing a 12% increase as compared to prior quarter. Earnings per share for the fourth quarter was $6.79 on a basic basis and $5.40 on a diluted basis. The diluted share count includes approximately $3 million shares from our convertible bond. Adjusted net income, which excludes non-cash unrealized gains on derivatives of twenty $24.1 million, and a $6 million loss on debt extinguishment came in at $69.3 million for the fourth quarter, or $5.38 per share on a basic basis.

As Gary mentioned earlier, adjusted EBITDA came in at $91.6 million for the fourth quarter. Let's now turn to Slide 13 for an overview of our balance sheet and liquidity. Total cash came in at $86.2 million at the end of Q4. Cash at $12.31 was driven by a strong operating results, offset by the repayment of $71.5 million of debt, vessel acquisitions, and vessel improvements in our Q3 dividend payment of $26 million.

I will cover the movements in greater detail on the cash walk slide. Total liquidity came in at $186.2 million for the year ending 2021. Total liquidity is comprised of total cash of $86.2 million and $100 million of fully undrawn revolving credit facility availability on our global Ultraco debt facility. Total gross debt, excluding debt issuance costs at the end of Q4 was $401.7 million, a decrease of $71.1 million from the prior quarter.

$9 million of the decrease is due to the global refinancing, which closed on October 1st. Post the refinancing in Q4, we were paid $50 million drawn on a new global refinancing revolver, and the first amortization payment of $12.45 million on the refinancing. At the time of the global refi in early October, we entered into interest rate swaps to move the interest rate exposure for the $300 million term loan from floating to fixed. As a result of these swaps, our interest rate exposure is fully fixed.

Please now turn to Slide 14 for an overview of our cash flow from operations for the fourth quarter of 2021. Net cash provided by operating activities was $88.3 million in Q4. The chart highlights the timing driven variability that working capital introduces to cash from operations, as depicted by the difference between the dark blue bars, which are the reported cash from ops number and the light blue bars, which strip out changes in operating assets and liabilities, primarily working capital. Although, as the chart demonstrates, the volatility caused by working capital largely evens out over time.

The difference between the two bars this quarter can be explained by a significant amount of cash collections just over quarter end in early January. Please turn to Slide 15 for a Q4 2021 cash walk. Let's focus on the top chart, which covers the cash movements in Q4. The revenue and operating expenditures bars are a simple look at the operations, with the net of these two bars coming in at $92 million, the same as our adjusted EBITDA result.

Moving to the right, the $90 million for vessels in [Inaudible] bar represents the acquisition costs for the Valencia Eagle, which was delivered in October, in vessel improvements related to ballast water treatment systems. Next, you will see the global refinancing activity, which helped in our deleveraging process, the pay down of the RCF and our first dividend. The bottom chart covers cash movements for the full year 2021. Let's now review Slide 16 for our cash breakeven per ship per day.

The cost pressure we experienced in Q4 will begin to ease in Q1. The one-time Q4 opex costs such as vessel acquisition and crewing company termination costs, will fall away in Q1. We see COVID related cost pressure, which we experienced in Q4, persisting as we continue to face challenges in areas such as crew repatriation. In addition, we are experiencing similar COVID related issues with ships in dry dock, which is putting pressure on costs in related off higher.

G&A was impacted by one-time legal costs in Q4, but should also move lower in Q1. Finally, our net debt service costs per ship per day will move lower as significant interest expense savings will more than offset the increase in amortization under the new global credit facility. More specifically, we expect the following per ship per day in Q1; Opex to decline to about 5,300; Cash G&A is expected to come in around 1,700. It is worth noting that this figure is based on own ships only.

If we include our chartered in fleet, G&A per ship per day is expected circa 1,400. Cash interest expense will decline to $759 down by $615 from the full year 2021 result. Cash debt amortization expense will increase to $2,610, up by $380 from full year 2021. In addition, there will also be a material change to non-cash interest expense, which will decline by approximately $1.2 million per quarter to $400,000.

As an accounting standard update, no longer requires the company to bifurcate the equity component of the convertible bond. In 2022, non-cash interest expense will consist of the amortization of debt issuance costs and the convertible bond and the new global Ultraco debt facility. This concludes my comments. I will now turn the call back to Gary.

Gary Vogel -- Chief Executive Officer

Thank you, Frank. Please turn to slide 18. The BSI had a 13-year high end mid late October, reaching almost $40,000. This strength was attributed to the robust commodity demand experienced since the beginning of 2021, and also supported by the container spill over trade, as well as elevated congestion due to supply chain bottlenecks in COVID related port restrictions around the world.

Rates started to come off in early November as congestion eased, tonnage availability increased, and trade flows decreased, particularly within the Pacific, where the Chinese slowed down their purchases of coal. This was driven by both the spike in commodity prices, but also by China looking to curtail annual import volumes, as we've seen in years past. As mentioned earlier on the call, the BSI averaged approximately $30,500 for Q4, down 11% as compared to the prior quarter. This downward move was driven solely by weakness within the Pacific, which saw rates decrease by 17% for the quarter to an average $27,000 to $17,000.

The Atlantic market actually rose during the same period. As we look ahead into Q1, to BSI continued to trade off through January, reaching a low of just over $17,000 on February 2nd. As alluded to before, January tends to be the weakest month of the year due to lower demand activity around Lunar New Year holidays, as well as elevated newbuilding deliveries. This year, the market was also impacted by the Winter Olympics and a short term halt on Indonesian coal exports.

Indonesia is a major coal exporting nation, but due to shortages in local coal inventories, the government enacted a ban on exports until producers met their domestic quotas. Most of these have now been met and exports have, for the most part normalized. Trade activity picked up significantly in February, and the BSI has been reflecting this, as rates have increased by almost $10,000 since the recent bottom. Quarter-to-date, the BSI has averaged around $22,000 and today stands around $27,000.

Near term, we expect increased volatility due to the tragic geopolitical events occurring in Ukraine. The Black Sea region is a major export market for grains, with Ukraine and Russia exporting a combined 15% of global seaborne grain trade. While it's too early to tell exactly what might happen, we will undoubtedly see some change in trade flows. Clearly, a reduction or stoppage of grain out of the Black Sea or cargoes from Russia will negatively impact the markets in those areas.

But overall, we could see an increase in ton-miles as end users find alternative sources for cargo. As an example, earlier this week, we fixed two cargoes of coal from Indonesia to Europe, aside from a strong TCE rate of more than $32,000 per day. It's noteworthy as this is the first time the company's ever move coal from Southeast Asia to the continent on what is a very long, ton-mile trade. Please turn to Slide 19.

Fuel prices strengthened in Q4 and continue their upward momentum as demand for oil products increase across the spectrum. HSFO and VLSFO are now averaging around $590 and $825 per tonne, respectively. The fuel price spread between HSFO and VLSFO has mirrored the increase in overall oil prices, with fuel spreads currently at about $235 per tonne, a two-year high. But it's worth noting that the forward curves are indicating pricing $165 for the balance of 2022.

With 89% of our fleet fitted with scrubbers, the price differential between HSFO and VLSFO is an important value driver for our business. As the slide indicates, based on year-to-date and the forward curves, we generate about $39 million of incremental value per annum. Please turn to Slide 20. Net fleet supply growth decreased slightly in Q4, a total of 79 dry bulk new building vessels were delivered during the period, down 11%  year-on-year.

Partially offsetting this, a total of just three vessels were scrapped during the same period, compared to 38 in Q4 of 2020. This low level of scrapping is not surprising given the strength the underlying spot market, and it continues to add to the group of older ships that will inevitably need to be recycled in the future. In terms of forward supply, the overall dry bulk orderbook stands at a historically low level of just 6.7%, and is even lower for the Supramax/Ultramax segment at 6.0.  For 2022, dry bulk net fleet growth is expected to be just 2.1% , which would be 40% lower than 2021 given the rapid depleting order book and somewhat higher projected scrapping as compared to this past year. A total of 72 dry bulk ships were ordered during Q4, about half the level of the prior quarter, and below the average over the last five years of roughly 100 ships per quarter.

It's also worth noting that 2/3 of these vessels that were ordered are only scheduled for delivery in 2024. Although we expect some level of ordering to continue, we still believe it will be somewhat muted, giving new building price levels both absolute and on a relative basis to second hand, the prolonged delivery time given the lack of yard slots and the ever increasing uncertainty around future carbon pricing and regulations regarding emissions. Please turn to Slide 21. As we have spoken about before and you can note from this slide, dry bulk demand is inextricably linked to global GDP.

For 2022, the IMF is estimating global GDP growth of 4.4%, which was lowered by 50 basis points as compared with October, reflecting inflationary pressure and supply chain issues in the U.S. economy, as well as China's zero COVID policy in response to omicron variant and weakness in China's property development sector. Please turn to Slide 22. Thanks to fiscal stimulus enacted in 2020 and 2021, as well as general commodity restocking due to impacts from COVID, dry bulk demand benefited from elevated growth last year.

Minor bulks, which is comprised of many infrastructure related commodities such as steel, cement, scrap, and [Inaudible], outperformed the major banks by almost 2 times. For 2022, dry bulk demand is forecast to be led by miner bulks again, with growth of 2.2% for minor bucks as compared with 1.9% for dry bulk overall. It's important to look at this in concept with the expected low fleet growth numbers, I mentioned a few moments ago. I also think it's important to highlight the relative strength in action and expected demand growth from minor bucks vs.

the majors. You can see this in year-to-date rate performance and also from what the forward curves are indicating. Year-to-date, the BSI has averaged $22,000 per day, while the cape index has averaged just $13,200. Looking ahead, forward curves for the balance of the year are trading at around $26,500 and $29,000, respectively.

We have always believed and continue to believe that the mid-sized dry bulk segment offers the best risk adjusted returns. Now withstanding near-term volatility, we're optimistic about the prospects for continued global growth, which is being supported by ongoing stimulus. The positive demand picture combined with a record low orderbook, supports our constructive view on market developments looking ahead. In closing, we're energized about Eagle's strong position following our multi-year fleet renewal and growth Initiative, as well as our recent comprehensive financing.

And on the back of these, we're looking forward to continue to execute for the benefit of our shareholders. With that, I'd now like to turn the call over to the operator and answer any questions that you may have. Operator?

Questions & Answers:

Operator

[Operator instructions] Our first question comes from Randy Giveans with Jefferies.

Randy Giveans -- Chief Executive Officer

How do you -- Gary, Frank De Costa, how's it going?

Gary Vogel -- Chief Executive Officer

Good. Good morning. 

Frank De Costanzo -- Chief Financial Officer

Good morning. 

Randy Giveans -- Chief Executive Officer

So, yeah. Congrats again, obviously another record quarter here. Very impressive quarter-to-date rate guidance for the first quarter. I'm sure much of that was fixed during the fourth quarter.

That said, any update on your FFA hedging plans and what percentage of 2Q 22 days are already booked in it and at what rate?

Gary Vogel -- Chief Executive Officer

Yeah. Well, thanks for that. I'll start with where we are in Q1 and as we enter the year, you'll see it in our K when we file it. We had about 3,000 days in FFA [Inaudible] at an average rate of $23,400, that's of course, based on the BSI.

So I think it's important to note that that's based on a Supramax vessel, a non scrubber fitted. And so from that, you can of course, extrapolate to where you think earnings would be on those hedges, that's effectively eight ships. In terms of the second quarter, we only provide guidance in the quarter that we're in. Having said that, I would point to the fact that the forward markets are up and quite strong.

In fact, just this morning.  April traded in excess of 30,000, and so the whole strip for the balance of the year for the Supramax, the BSI has really pushed up. And the index, as of this morning actually is over 28. So we feel like we're in a good position given a balance here with some FFA coverage going into the year. But in terms of specificity, we're not going to provide guidance as to TCE at this point for Q2.

Randy Giveans -- Chief Executive Officer

OK. That's fair. And I guess outside of FFA, what about time charters? Have you locked in some for the full year?

Gary Vogel -- Chief Executive Officer

Yeah.  The answer is yes. We have done some. We've decided to keep not to disclose all of our our exact balance because for us, it's dynamic. We take shifts in as well.

So we may decide to go out and and fix a number of ships, and then the following week, we may take three or four ships on three to five month charter. So  it may and may give the wrong impression if we give a static number. But just anecdotally,  I mentioned the Stockholm Eagle fixture, which I think speaks to the strength in the market, seasoned Ultramax of ours, and we fixed it was just this week at $36,500 as a gross rate for a minimum of five months. So,  these and those numbers, I would say,  if anything today, that market is even slightly higher than it was three days ago when we did that fixtures.

So it's really dynamic for Eagle, and so it's not like we're trying to be obtuse here, and not provide it, but it's dynamic in the sense that our position shortens and lengthens really on a daily basis.

Randy Giveans -- Chief Executive Officer

Yeah. No, that's fair. All right. That's a pretty solid rate on Stockholm.

Last question for me. Balance sheet clearly in great shape. Your fleet is now fully delivered going forward and obviously, knowing you're paying out at least 30% of net income via dividends, share repurchases. I guess, what do you do with your substantial excess free cash above and beyond.

Debt repayment, fleet renewal, something else?

Gary Vogel -- Chief Executive Officer

Yeah. So, if we start with the fact that we've just done on -- now in this is the second quarter of our dividend payment, as you point out, it's a minimum 30% and that's what the board approved for this quarter. Having said that in terms of debt repayment, we have almost $50 million of amortization in our new bank facility. So pretty robust.

We do believe that putting cash on the balance sheet makes sense. Particularly,  potentially we have the option ultimately to -- on the convert to redeem that in cash or shares. And we think there's a real benefit for a substantial portion, if not all of it, to do that in cash at some point. So, right now, we feel comfortable with where we are, whether or not the dividend increases as again, as you pointed out, it's a minimum of 30%.

We feel comfortable garnering that cash and putting it on the balance sheet right now. In addition to the substantial amount that we return to shareholders with a dividend of $2.05.

Randy Giveans -- Chief Executive Officer

Got it. All right. That sounds good. That's it for me.

Thanks again.

Gary Vogel -- Chief Executive Officer

All right. Thank you.

Operator

Our next question comes from Magnus Fyhr with H.C. Wainwright

Magnus Fyhr -- H.C. Wainwright and Company -- Analyst

Yeah, good morning. Congrats to a great quarter, and just had a couple of questions. On the time charter, a short-term time charter you did five months. It seemed like,  what's -- where's that trait or where is that origination destination of that? And how long is that voyage? I'm just trying to figure out why somebody would lock in a 36 for a very short five months if you can maybe give a little flavor on that?

Gary Vogel -- Chief Executive Officer

Sure. So, first of all, that's a scrubber fitted Ultramax. And right now, given the fuel spreads,  the the benefit of having a scrubber is in excess of $3,000 a day. And it's actually even more in Asia, where Singapore the price spread is even greater than the number I indicated, which we use it.

We use an average of a number of the major ports in the world. And then it's in the Far East where rates are really pushing up right now. We see the strength really coming from the Pacific, and part of the reason, of course, is the disruption of dislocation from what's going on in Ukraine. And so ships are balancing away there.

So we see, for instance, a lot of demand. I mentioned the coal cargoes moving from Indonesia to the continent, it's putting pressure on that market on top of normal movements. So the number -- the headline number is quite strong. The actual period that we fixed is a minimum of five months to about seven months, meaning that the ship could come back six and a half to seven and a half months.

And we don't particularly like to relight our ships on because of that optional period in terms of when the ship can come back in this case, six and a half to seven and a half months. But when the rate is such that we feel it's a significant premium to the market and lock in cash flows, that it's a better -- a better tool if you will, than the FFA. And we go ahead and do that. And we felt that in Stockholm, that's exactly what this represented.

Magnus Fyhr -- H.C. Wainwright and Company -- Analyst

All right. Thank you. And besides the coal trade going to Europe, China is a big importer of grains. Do you see them stepping up here? is it too early or do you see any movement there from them trying to secure cargoes and in the forward market?

Gary Vogel -- Chief Executive Officer

Yeah. There was an [Inaudible] yesterday about China looking to source and secure commodities across the board. What's interesting is we've seen China buying a significant amount of U.S. soybeans, even though we're getting into out of Brazilian season, it says there's a price benefit there.

So surprisingly robust soybean purchases out of the U.S. But in general, we've seen significant demand across the board. And I think that's why you're seeing rate developments know push up for the Supramax. And as I mentioned,  now in excess of 28 in the forward curve for the second quarter, even higher.

Magnus Fyhr -- H.C. Wainwright and Company -- Analyst

All right. And just last question, I know you'd like to use the forward market to hedge some of your exposure. With the fuel spread, I guess pretty, pretty wide now prompt compared to the forward market. What's your position there as far as hedging anything? Or it's going to be have a naked position there?

Gary Vogel -- Chief Executive Officer

Yeah. It's something we're talking about quite actively. Right now, the forward market is around 165 and obviously, that's a significant number for us. But it's pretty, pretty heavily backward data to spot.

So I think, we haven't made a decision, but I think you could see us start to layer in some spread hedges. We did quite a bit in 2019, running up to 2020, which was really beneficial for us when the market unexpectedly backed off. And we're big believers in hedging and locking in non-core risk, which that absolutely, we see it as a as a potential. So nothing yet, but I think you likely will see us start to do so in the near future.

Magnus Fyhr -- H.C. Wainwright and Company -- Analyst

OK. And just one last question. If you look at the new build market, what's the current lead time? If you would put an order for a Supramax one [Inaudible] versus 10.

Gary Vogel -- Chief Executive Officer

Yeah. It really depends where you are. I think a good indicator would be where the 70 -- I think it was 72 ships were ordered last quarter, 2/3 of them are in 2024 and 1/3 in '23. I think '23 is now all but gone.

It's possible you'll find one or two berths or maybe maybe a handful, probably out of second Tier Chinese yard. But in general, you're looking at 2024. 

Magnus Fyhr -- H.C. Wainwright and Company -- Analyst

OK. Great. Thank you. 

Gary Vogel -- Chief Executive Officer

All right. Thank you, Magnus.

Operator

[Operator instructions] Our next question comes from Omar Nokta with Clarkson Securities.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Thank you. Hi, Gary. I just wanted to start maybe with one of the topics with Magnus, the scrubbers. Obviously, we've seen a big jump in fuel differentials and a huge benefit today with having the scrubbers on board.

I just wanted to ask it, do you see any risk of not being able to capture these price differences? With all the volatility we've been seeing in the commodities and with crude and bunker fuel in general? Is there any shortages that you're potentially seeing or envision for HSFO in something that would make you not able to capture this widespread?

Gary Vogel -- Chief Executive Officer

The short answer is no. We haven't seen any shortage whatsoever of HSFO. And in fact, if you did, you would see that price push up, right? So we have been able to capture virtually 100%, when we do business on voyage basis, fuel price -- fuel cost is an internal. And when we price freight, we don't price freight on basis of HSFO, we price it on conventional fuel.

And the reason we do that is 93% of our competitors of the mid-size fleet don't have scrubbers. And so we never look at what -- we look at it, but we never price freight using heavy fuel. We only do it on a compliant fuel and then we get the benefit. When we go to the pump effectively, we pay less.

And when we charter a vessel out, we absolutely look for 100% of the value of that scrubber. When we look at what we need for on a time charter out and our default is not to do that, we look at exactly what we believe based on the spread and the geographic area, what that is. And if we don't get full value, then we simply won't do it. And I think, going back to the Stockholm Eagle, I think is a good exampleof getting that premium over and above the BSI rate plus that seasoned Ultramax, plus that scrubber fitted given where she is and what the current spread is.

So there's a mouthful. Sorry about that.

Omar Nokta -- Clarksons Platou Securities -- Analyst

No, I'm good. That's helpful. Actually, it does feel like when we look at the Stockholm that it does indeed get the -- as you mentioned, 100% scrubber benefit or at least very close to it. Frank, you mentioned just in your working capital cash flux.

You did talk about just the working capital aspect of the business and just wanted to ask, any concerns or any impact you see on higher bunker fuel prices having on short term liquidity?

Frank De Costanzo -- Chief Financial Officer

Hey, I'm frank here. No, none at all. Working capital is feeling great. We had a bit of an overlap in collections.

We had a good amount of collections coming in early January that just started it a bit there. But no, there's no issues at all. Feels great. Our DSO is as low as ever, so we're quite pleased with our working capital management.

Omar Nokta -- Clarksons Platou Securities -- Analyst

OK. Very good. And on one -- just one final one. Gary, just back to it,  I think it was Magnus's last question.

Regarding the scrubber benefit again, but just in general, I guess we've talked about the Stockholm several times in the call. But in terms of --  in your opening comments, you talked about managing the business, you guys are in good financial condition. You want to add perhaps more cash to the balance sheet just as to the dividends you're enjoying the benefits of basically buying a bunch of those vessels last year at a low capital base and that we reap the benefits of that. But, in terms of keeping an eye on acquisitions,  given the premiums that we're seeing now, you've been able to achieve such a big number in your first quarter guidance relative to the index, how do you think about acquisitions going forward? Last year, I think at this time, you bought a handful of older Supramax taking advantage, maybe opportunistically very discounted prices.

But when we look ahead for now, does the premium that you achieved in the Stockholm and scrubber benefit you're getting now, does that maybe compel you or push you in the direction if there are going to be acquisitions going forward? And at least in the visible future, is it going to be on the higher end of the thicker?

Gary Vogel -- Chief Executive Officer

Yeah. So, the simple answer is that, if you look at the 29 acquisitions we did, 26 of them were Ultramax from effectively resale up to five years old. And that's, I think where Eagle will focus. The three-crown 58s were a unique opportunity that presented itself and we acted upon it.

But that's not really where Eagle sees its future. So absolutely, I think we'll focus on Ultramax. And in terms of scrubbers, I think we have the largest fleet of mid-size, ships, scrubber fitted ships. So while we're agnostic in the sense that scrubbers themselves have a value and we won't overpay for that, scrubbers --  if scrubber fitted tonnage comes into the market, there's not a lot in our segment, that's definitely something we feel we have a competency to extract the full value for and we'll look to that.

But it -- not exclusively.

Omar Nokta -- Clarksons Platou Securities -- Analyst

Understood. OK. Thanks, Gary. Thanks, Frank. 

Operator

And next question comes from Liam Burke with B. Riley.

Liam Burke -- B. Riley Financial Inc. -- Analyst

Yeah. Thank you. Good morning, Gary, Frank. Frank, you've got a high class problem with the free cash flow even in excess of the dividend payout that you target 30% of net income.

Is there a target leverage ratio you have? Or are you just going to manage the cash on a year-to-year basis?

Frank De Costanzo -- Chief Financial Officer

The leverage ratio moves around with the business cycles. Right now,  net debt EBITDA were around one turn, which is already a good place to be, but there's no hard targets and clearly getting our balance sheet in great shape while things are good, is priority one. So, when the market turns, we'd like to be in a position if it does to, then make acquisitions or play offense as we say here. So we feel we're in great shape.

We don't have a hard target and we're de-levering as cash comes in.

Liam Burke -- B. Riley Financial Inc. -- Analyst

Fair enough. And then on the opex, you're going to have a nice sequential step down. There's obviously, some one timers in there. How do you see managing opex as you move through the year? Is there any additional low hanging fruit you can manage down?

Gary Vogel -- Chief Executive Officer

Yeah. I'll take that one. I'm a firm believer opex as an output, right? It shouldn't be a target, because we need to run our ships safely, efficiently, compliantly, and reliably. And so, the fourth quarter, as you said, it had had some costs in there.

We've -- during 2021, we've worked on increasing what we call critical spares inventories to ensure that -- and make sure that the ships are able to to stay moving. It's really critical in a high market, right, because the cost -- the one negative of a high market is the cost of not moving and waiting for something is that much greater. So those costs are business case decisions. There's also incremental cost in opex from COVID.

It continues to be extremely challenging with regulations, with quarantines. Unfortunately, with some infection positive cases, things like that. And there's costs involved with quarantining crews in terms of repatriations and flights. And so, it is we do expect a significant step down.

But I think, opex will continue to likely be a bit volatile given the dynamics in the world right now.

Liam Burke -- B. Riley Financial Inc. -- Analyst

Great. Thank you, Gary. Thank you, Frank. 

Operator

And I'm not showing any further questions that something like turn the call back over for any closing remarks.

Gary Vogel -- Chief Executive Officer

Thanks very much. We have nothing further so I'd like to thank everyone for joining us today and wish everyone a good day.

Operator

[Operator signoff]

Duration: 42 minutes

Call participants:

Gary Vogel -- Chief Executive Officer

Frank De Costanzo -- Chief Financial Officer

Randy Giveans -- Chief Executive Officer

Magnus Fyhr -- H.C. Wainwright and Company -- Analyst

Omar Nokta -- Clarksons Platou Securities -- Analyst

Liam Burke -- B. Riley Financial Inc. -- Analyst

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