Genco Shipping & Trading Limited Announces Third Quarter Financial Results

 

Increases Quarterly Dividend and Approaches Full Execution of Genco’s Comprehensive Value Strategy

Reports Highest Quarterly Earnings Per Share Since 2008

NEW YORK, Nov. 03, 2021 (GLOBE NEWSWIRE) — Genco Shipping & Trading Limited (NYSE:GNK) (“Genco” or the “Company”), the largest U.S. headquartered drybulk shipowner focused on the global transportation of commodities, today reported its financial results for the three months and nine months ended September 30, 2021.

The following financial review discusses the results for the three months and nine months ended September 30, 2021 and September 30, 2020.

Third Quarter 2021 and Year-to-Date Highlights

• As part of Genco’s comprehensive value strategy announced in April 2021, we have taken the following steps in the year-to-date:
  • Closed our $450 Million Credit Facility in August 2021, which provides additional flexibility for capital allocation, lowers our cash flow breakeven rate, and improves key terms
  • Took delivery of four modern, fuel efficient Ultramax vessels in Q3 2021
  • Repaid $144.2 million of debt during the first nine months of 2021, or 32% of the beginning year debt balance
    • We plan to pay down debt to $246 million by year-end 2021
  • Fixed seven vessels on period TCs for ~1 to ~2 years at rates between $23,375 and $32,000 per day to secure cash flows and de-risk acquisitions

• Genco increased its regular quarterly cash dividend to $0.15 per share for the third quarter of 2021
  • Payable on or about November 22, 2021 to all shareholders of record as of November 15, 2021
  • We have now declared cumulative dividends totaling $1.055 per share over the last nine quarters
  • The first dividend under Genco’s value strategy, is to be based on Q4 2021 results and be payable in Q1 2022
• We recorded net income of $57.1 million for the third quarter of 2021
  • Basic and diluted earnings per share of $1.36 and $1.34, respectively
  • Adjusted net income¹ of $61.7 million or basic and diluted earnings per share of $1.47 and $1.44, respectively, excluding $4.4 million in loss on debt extinguishment and a $0.2 million loss on sale of vessels
  • Represents our highest quarterly earnings per share result since Q3 2008
• Voyage revenues totaled $155.3 million and net revenue¹ (voyage revenues minus voyage expenses and charter hire expenses) totaled $108.8 million during Q3 2021
  • Our average daily fleet-wide time charter equivalent, or TCE¹, for Q3 2021 was $29,287, marking our highest quarterly TCE since 2010
  • We estimate our TCE to date for Q4 2021 to be $36,879 for 71% of our owned fleet available days, based on both period and current spot fixtures
• Recorded adjusted EBITDA of $79.8 million during Q3 2021, which is greater than the comparable figure for all of 2020¹
• Maintained a strong liquidity position with $80.5 million of cash as of September 30, 2021, after $144.2 million of debt repayments as well as $108.7 million paid for vessels acquired in the year to date
• Established a new joint venture, GS Shipmanagement Pte. Ltd., with The Synergy Group (“Synergy”) for the technical management of our fleet, which aims to unlock further value for shareholders through its differentiated approach to ship management
• Became a signatory to the Call to Action for Shipping Decarbonization

John C. Wobensmith, Chief Executive Officer, commented, “During the third quarter, Genco maintained its upward earnings trajectory posting its best quarter since 2008. We continue to capitalize on both our leading platform and the favorable drybulk market, which has moved from strength-to-strength in recent quarters. While we anticipate normal seasonality in the coming months, the overall fundamentals, including a historically low orderbook, remain supportive of Genco further taking advantage of its strong earnings power for the benefit of shareholders. Against this favorable backdrop, we are progressing towards the full execution of our comprehensive value strategy. Importantly, we have laid the groundwork over the course of the year, have once again increased our quarterly dividend and are on schedule to declare our first dividend under our new policy.”

Mr. Wobensmith, continued, “With our expected debt balance of $246 million by year-end 2021, representing a planned 45% pay down of our debt outstanding at the start of the year, we will have meaningfully reduced our financial leverage creating an attractive risk-reward profile for the Company. Based on this success and our significant operating leverage, we believe we are well-positioned to distribute compelling dividends to shareholders through diverse market environments while continuing to opportunistically grow the Company.”

¹ We believe the non-GAAP measure presented provides investors with a means of better evaluating and understanding the Company’s operating performance. Please see Summary Consolidated Financial and Other Data below for a further reconciliation.

Comprehensive Value Strategy Update

Genco’s comprehensive value strategy is centered on three key pillars:

• Low financial leverage
• Paying sizeable quarterly cash dividends to shareholders, and
• Growth of the Company’s asset base
  
  

We believe this strategy is a key differentiator for the Company and will drive shareholder value over the long-term creating a compelling risk-reward balance.

Drawing on one of the strongest balance sheets in the industry, Genco has utilized a phased in approach to further reduce its debt and refinance its current credit facilities in order to lower its cash flow breakeven levels positioning the Company to pay a sizeable quarterly dividend across diverse market environments. At the same time, we also maintain significant flexibility to grow the fleet through accretive vessel acquisitions. The first dividend under the Company’s new corporate strategy will be based on Q4 2021 results and be payable in Q1 2022.

In implementing this strategy, the Company has taken the following measures to date:

• Deleveraging: paid down $144.2 million of debt during the first nine months of 2021, or approximately 32% of our outstanding debt
• Refinancing: closed on a new global credit facility to increase flexibility, improve key terms and lower cash flow breakeven rates
• Revolver: our new $450 million credit facility has a substantial revolver in place with $137.5 million of availability as of September 2021
• Growth: agreed to acquire six modern, fuel efficient Ultramaxes since April 2021
• Securing revenue: opportunistically fixed various period time charterers to secure cash flows and de-risk recent acquisitions
  

We plan to have $246 million of debt outstanding at December 31, 2021 following voluntary debt repayments totaling $59 million in the fourth quarter of 2021. Importantly, following these repayments, we will have no mandatory debt amortization payments until December 2025, or later, if we continue to make additional voluntary paydowns. Regardless of this favorable mandatory amortization schedule, we plan to continue to voluntarily pay down our debt with the medium term objective of reducing our net debt to zero and a longer term goal of zero debt.  

Dividend policy

For the third quarter of 2021, Genco declared a cash dividend of $0.15 per share. This represents an increase of $0.05 per share compared to the previous quarter. Our quarterly dividend policy and declaration and payment of dividends are subject to legally available funds, compliance with applicable law and contractual obligations (including our credit facilities) and the Board of Directors’ determination that each declaration and payment is at the time in the best interests of the Company and its shareholders after its review of our financial performance.

As part of Genco’s value strategy, the Board of Directors adopted a new quarterly dividend policy for dividends payable commencing in the first quarter of 2022 in respect to the Company’s financial results for the fourth quarter of 2021.  Under the new quarterly dividend policy, the amount available for quarterly dividends is to be calculated based on the following formula: 

Operating cash flow
Less: Debt repayments
Less: Capital expenditures for drydocking
Less: Reserve
Cash flow distributable as dividends

For purposes of the foregoing calculation, operating cash flow is defined as voyage revenue less voyage expenses, charter hire expenses, vessel operating expenses, general and administrative expenses other than non-cash restricted stock expenses, technical management fees, and interest expense other than non-cash deferred financing costs.  Anticipated uses for the reserve include, but are not limited to, vessel acquisitions, debt repayments, and general corporate purposes. In order to set aside funds for these purposes, the reserve will be set on a quarterly basis in advance of the subsequent quarter and is anticipated to be based on future quarterly debt repayments and interest expense. The quarterly reserve for the fourth quarter of 2021, which is set in and remains subject to our Board of Directors’ discretion, is expected to be $10.75 million, which was determined based on $8.75 million for voluntary debt repayments anticipated to be made in Q1 2022 as well as estimated cash interest expense on our debt. The quarterly debt repayment and reserve will be reassessed on a quarterly basis in advance by the Board of Directors and management. Maintaining a quarterly reserve as well as optionality for the uses of the reserve are important factors of the corporate strategy as it enables Genco to be flexible depending on market conditions and provide a more tailored approach to Genco’s overall business model.

The Board expects to reassess the payment of dividends as appropriate from time to time. The quarterly dividend policy and declaration and payment of dividends are subject to legally available funds, compliance with law and contractual obligations and the Board of Directors’ determination that each declaration and payment is at the time in the best interests of the Company and its shareholders.

Genco’s active commercial operating platform and fleet deployment strategy

Overall, we utilize a portfolio approach towards revenue generation through a combination of short-term, spot market employment as well as opportunistically booking longer term coverage. Our fleet deployment strategy currently remains weighted towards short-term fixtures, which provide us with optionality on our sizeable fleet. Our barbell approach towards fleet composition enables Genco to gain exposure to both the major and minor bulk commodities with a fleet whose cargoes carried align with global commodity trade flows. This approach continues to serve us well given the upside experienced in major bulk rates together with the continued improvement and relative stability of minor bulk rates.

Based on current fixtures to date, our estimated TCE to date for the fourth quarter of 2021 on a load-to-discharge basis is presented below. Our estimated Q4 TCE based on current fixtures is 26% higher than Q3, highlighting our opportunistic and mostly spot oriented approach to fixture activity. In the year-to-date, we have selectively booked period time charter coverage for approximately one to two years on four Capesize and four Ultramax vessels. We view these fixtures as part of our portfolio approach to fixture activity and prudent to take advantage of in the firm freight rate environment. Specifically, the three Ultramax time charters for two years each were booked to de-risk the purchase of the three Ultramax vessels we agreed to purchase in July 2021 and are expected to result in an unlevered cash-on-cash return of approximately 50% over the two year period.

As we have fixed eight vessels on one to two year period time charters, we have provided a TCE breakout of the period time charters as well as the spot trading fixtures in the fourth quarter to date. Actual rates for the fourth quarter will vary based upon future fixtures. We have approximately eight Capesize vessels coming open in the coming weeks, of which we plan to ballast select vessels to the Atlantic basin. As the market has declined from the highs seen during the third quarter and early October, we anticipate the unfixed portion of our available days to be contracted at lower rates than those reflected above in our fixtures to date.

Fleet Update

Since April 2021, the Company has entered agreements to purchase six modern, fuel efficient Ultramax vessels. To date, we have taken delivery of the following Ultramax vessels:

• Genco Enterprise (2016-built) on August 23, 2021
• Genco Madeleine (2014-built) on August 23, 2021
• Genco Mayflower (2017-built) on August 24, 2021
• Genco Constellation (2017-built) on September 3, 2021

We anticipate taking delivery of the final two Ultramaxes in January 2022 at which point we expect to pay the remaining $40.8 million to acquire these two vessels. Since December 2020, we have grown our core Ultramax fleet by nine vessels to a total of 15 vessels as we continue to modernize and expand our fleet at an attractive point in the drybulk cycle.

Regarding vessel divestitures, we completed the sale of the Genco Provence on November 2, 2021, for gross proceeds of $13.25 million. With this sale, we have now divested the oldest vessel in our fleet and in the process have avoided drydocking capex scheduled for 2022 of approximately $0.8 million.

Financial Review: 2021 Third Quarter

The Company recorded net income for the third quarter of 2021 of $57.1 million, or $1.36 and $1.34 basic and diluted earnings per share, respectively. Comparatively, for the three months ended September 30, 2020, the Company recorded a net loss of $21.1 million, or $0.50 basic and diluted net loss per share.

The Company’s revenues increased to $155.3 million for the three months ended September 30, 2021, as compared to $87.5 million recorded for the three months ended September 30, 2020, primarily due to higher rates achieved by both our major and minor bulk vessels, as well as our third-party time chartered-in vessels, which was partially offset by the operation of fewer vessels in our fleet. The average daily time charter equivalent, or TCE, rates obtained by the Company’s fleet was $29,287 per day for the three months ended September 30, 2021 as compared to $11,456 per day for the three months ended September 30, 2020. During the third quarter of 2021, drybulk freight rates reached decade highs led by a seasonal rise in iron ore shipments from Brazil and Australia, strong global economic activity, a reduction of fleet-wide productivity due to COVID-19 restrictions and port congestion, increased demand for coal ahead of peak winter season and manageable fleet growth due to the historically low orderbook. Rates continued to show strength going into the fourth quarter, with the BCI reaching a peak on October 7^th, but have since come off their highs due to easing iron ore exports, a decline in port congestion together with reduced steel output in China from the record levels seen earlier in the year. These factors have been partially offset by an increase in coal shipments.

Voyage expenses were $37.8 million for the three months ended September 30, 2021 compared to $33.5 million during the prior year period. This increase was primarily due to higher bunker expenses, partially offset by the operation of fewer vessels. Vessel operating expenses decreased to $21.8 million for the three months ended September 30, 2021 from $23.5 million for the three months ended September 30, 2020, primarily due to fewer owned vessels during the third quarter of 2021 as compared to the third quarter of 2020, partially offset by higher crew expenses as a result of COVID-19 related expenses and disruptions. General and administrative expenses increased to $5.7 million for the third quarter of 2021 compared to $5.1 million for the third quarter of 2020, primarily due to higher legal and professional fees. Depreciation and amortization expenses decreased to $14.2 million for the three months ended September 30, 2021 from $16.1 million for the three months ended September 30, 2020, primarily due to a decrease in depreciation for certain vessels in our fleet that were impaired during 2020, as well as a decrease in the depreciation of vessels due to the operation of a smaller fleet during the third quarter of 2021 as compared to the third quarter of 2020.

Daily vessel operating expenses, or DVOE, amounted to $5,833 per vessel per day for the third quarter of 2021 compared to $4,961 per vessel per day for the third quarter of 2020. This increase is primarily attributable to higher crew expenses as a result of COVID-19 related expenses and disruptions, as well as higher spares. We believe daily vessel operating expenses are best measured for comparative purposes over a 12-month period in order to take into account all of the expenses that each vessel in our fleet will incur over a full year of operation. Based on estimates provided by our technical managers, our DVOE budget for Q4 2021 is $5,100 per vessel per day on a fleet-wide basis reflecting the larger weighting of our fleet towards Capesize vessels following the sales of smaller Supramax and Handysize vessels as well as an anticipated increase in COVID-19 related expenses. The potential impacts of COVID-19 are beyond our control and are difficult to predict due to uncertainties surrounding the pandemic.

Apostolos Zafolias, Chief Financial Officer, commented, “During the quarter, we took important steps to strengthen our capital structure and further reduce our financial leverage. We closed our new $450 million credit facility, which will further reduce our cash flow break evens to among the lowest in the industry and provide additional flexibility through improved terms and a sizeable revolver. We entered the fourth quarter with a strong cash position and the financial flexibility to continue to execute on all components of our comprehensive value strategy related to distributing sizeable dividends to shareholders and opportunistically growing the fleet. Our focus remains on improving the strength of our balance sheet and shareholder returns. We are pleased with our ongoing success and will focus on continuing to pay down debt with a medium-term objective of reducing our net debt to zero.”

Financial Review: Nine Months 2021

The Company recorded net income of $91.2 million or $2.17 and $2.14 basic and diluted net earnings per share for the nine months ended September 30, 2021, respectively. This compares to a net loss of $159.7 million or $3.81 basic and diluted net loss per share for the nine months ended September 30, 2020. Net income for the nine months ended September 30, 2021 includes a $0.9 million loss on sale of vessels as well as a $4.4 million loss on debt extinguishment. Net loss for the nine months ended September 30, 2020 includes $134.7 million in non-cash vessel impairment charges and a $0.8 million loss on sale of vessels. Revenues increased to $363.9 million for the nine months ended September 30, 2021 compared to $260.1 million for the nine months ended September 30, 2020, primarily due to higher rates achieved by our fleet as well as our third party time chartered-on vessels, which was partially offset by the operation of fewer vessels in our fleet. Voyage expenses decreased to $109.6 million for the nine months ended September 30, 2021 from $123.6 million for the same period in 2020. TCE rates obtained by the Company increased to $20,761 per day for the nine months ended September 30, 2021 from $9,307 per day for the nine months ended September 30, 2020. Total operating expenses for the nine months ended September 30, 2021 and 2020 were $255.9 million and $402.3 million, respectively. Total operating expenses include a loss on sale of vessels of $0.9 million for the nine months ending September 30, 2021. For the nine months ended September 30, 2020, total operating expenses include $134.7 million in non-cash vessel impairment charges, as well as a loss on sale of vessels of $0.8 million for the nine months ending September 30, 2020. General and administrative expenses for the nine months ended September 30, 2021 increased to $17.6 million as compared to the $16.4 million in the same period of 2020, primarily due to higher legal and professional fees. DVOE was $5,286 for the year-to-date period in 2021 versus $4,576 in 2020. The increase in daily vessel operating expense was predominantly due to higher crew expenses as a result of COVID-19 related expenses and disruptions. As a result of COVID-19 restrictions during the first half of 2020, we were unable to perform our regularly scheduled crew changes, resulting in an abnormally low DVOE for that period. EBITDA for the nine months ended September 30, 2021 amounted to $145.4 million compared to $(93.5) million during the prior period. During the nine months of 2021 and 2020, EBITDA included non-cash impairment charges, gains and losses on sale of vessels as well as a loss on debt extinguishment as mentioned above. Excluding these items, our adjusted EBITDA would have amounted to $150.7 million and $42.1 million, for the respective periods.

Liquidity and Capital Resources

Cash Flow

Net cash provided by operating activities for the nine months ended September 30, 2021 was $135.0 million as compared to $16.0 million for the nine months ended September 30, 2020. This increase in cash provided by operating activities was primarily due to higher rates achieved by our major and minor bulk vessels, changes in working capital, as well as a decrease in drydocking related expenditures and interest expense.

Net cash used in investing activities for the nine months ended September 30, 2021 was $77.3 million as compared to net cash provided by investing activities of $12.3 million for the nine months ended September 30, 2020.  This fluctuation was primarily due to the purchase of four Ultramax vessels which delivered during the third quarter of 2021, as well as deposits made for the two Ultramax vessels that are expected to be delivered during the first quarter of 2022.  These fluctuations were partially offset by a decrease in scrubber related expenses and an increase in net proceeds from the sale of vessels during the nine months ended September 30, 2021 as compared to the same period during 2020.

Net cash used in financing activities during the nine months ended September 30, 2021 and 2020 was $156.9 million and $29.8 million, respectively.  The increase was primarily due to the refinancing of the $495 Million Credit Facility and the $133 Million Credit Facility with the $450 Million Credit Facility on August 31, 2021.  During the nine months ended September 30, 2021, the increase in total net cash used in financing activities related to our credit facilities was $123.8 million as compared to the same period during 2020.  Additionally, there was a $5.0 million increase in the payment of deferred financing costs paid in relation to the $450 Million Credit Facility during the nine months ended September 30, 2021.  These increases were partially offset by a $1.8 million decrease in the payment of dividends during the nine months ended September 30, 2021 as compared to the same period during 2020.

Capital Expenditures

We make capital expenditures from time to time in connection with vessel acquisitions. As of November 3, 2021, Genco Shipping & Trading Limited’s fleet consists of 17 Capesize, 13 Ultramax and 12 Supramax vessels with an aggregate capacity of approximately 4,514,000 dwt and an average age of 10.1 years.

In addition to acquisitions that we may undertake, we will incur additional capital expenditures due to special surveys and drydockings. Furthermore, we plan to upgrade a portion of our fleet with energy saving devices and apply high performance paint systems to our vessels in order to reduce fuel consumption and emissions. We estimate our capital expenditures related to drydocking, including capitalized costs incurred during drydocking related to vessel assets and vessel equipment, ballast water treatment system costs, fuel efficiency upgrades and scheduled off-hire days for our fleet for the balance of 2021 and 2022 to be:

(1) Estimates are based on our budgeted cost of drydocking our vessels in China. Actual costs will vary based on various factors, including where the drydockings are actually performed. We expect to fund these costs with cash on hand. These costs do not include drydock expense items that are reflected in vessel operating expenses. Estimated drydocking costs for 2022 exclude the $0.8 million in relation to the agreed upon sale of the Genco Provence.

(2) Estimated costs associated with the installation of ballast water treatment systems is expected to be funded with cash on hand.

(3) Estimated costs associated with the installation of fuel efficiency upgrades are expected to be funded with cash on hand.

(4) Actual length will vary based on the condition of the vessel, yard schedules and other factors. The estimated offhire days per sector scheduled for Q4 2021 consists of 40 days for two Ultramaxes and 20 days for one Supramax. Estimated offhire days for 2022 relate to 12 vessels drydocking during the year and exclude days related to the Genco Provence due to the vessel’s agreed upon sale.

Summary Consolidated Financial and Other Data

The following table summarizes Genco Shipping & Trading Limited’s selected consolidated financial and other data for the periods indicated below.