Genco Shipping reports 2Q loss

Genco

Genco Shipping & Trading Limited reported its financial results for the three and six months ended June 30, 2017.

The following financial review discusses the results for the three and six months ended June 30, 2017 and June 30, 2016.

Second Quarter 2017 and Year-to-Date Highlights

  • Recorded a net loss of $14.5 million for the second quarter of 2017
    • Basic and diluted loss per share of $0.42
    • Adjusted basic and diluted loss of $12.5 million or $0.36 per share, excluding $1.3 million for gain on sale of vessel and $3.3 million non-cash impairment charge1
  • During the second quarter of 2017 we completed our vessel sale program
    • Sold the Genco Prosperity for total net proceeds of $2.9 million

_____________________________________
1 We believe the non-GAAP measure presented provides investors with a means of better evaluating and understanding the Company’s operating performance.

Financial Review: 2017 Second Quarter

The Company recorded a net loss for the second quarter of 2017 of $14.5 million, or $0.42 basic and diluted net loss per share. Comparatively, for the three months ended June 30, 2016, the Company recorded a net loss of $110.7 million, or $15.32 basic and diluted net loss per share. Basic and diluted net loss per share for the three months ended June 30, 2016 has been adjusted for the one-for-ten reverse stock split of Genco’s common stock effected on July 7, 2016.

John C. Wobensmith, Chief Executive Officer, commented, “During the second quarter, we took additional steps to strengthen our leading and sizeable drybulk platform as the market continues its recovery. Our ongoing success optimizing the profile and deployment of Genco’s diversified fleet provides us significant optionality in a rising market. In addition, our fleet strongly aligns with global trade dynamics and our increased focus on providing customers with a full-service logistics solution through direct liftings of both major and minor bulks contribute to our strong commercial prospects. We intend to maintain our position as a leading low cost operator, which should serve us well as supply and demand fundamentals continue to come into balance. With significant financial flexibility, we also remain well positioned to capitalize on compelling opportunities as we seek to further enhance Genco’s industry leadership.”

The Company’s revenues increased to $45.4 million for the three months ended June 30, 2017, compared to $31.9 million for the three months ended June 30, 2016. The increase was primarily due to higher spot market rates achieved by the majority of the vessels in our fleet during the second quarter of 2017 versus the same period last year partially offset by the operation of fewer vessels during the second quarter of 2017 as compared to the second quarter of 2016.

The average daily time charter equivalent, or TCE, rates obtained by the Company’s fleet was $8,439 per day for the three months ended June 30, 2017 as compared to $4,618 for the three months ended June 30, 2016. The increase in TCE was primarily due to higher spot rates achieved by the majority of the vessels in our fleet during the second quarter of 2017 versus the second quarter of 2016. The freight market strength that materialized at the end of Q1 2017 carried into the beginning of the second quarter as a result of record Chinese steel output which led to heightened demand for seaborne iron ore and coal cargoes. Additionally, the South American grain season aided in supporting smaller class vessels. Towards the end of the quarter, the freight market came under pressure as the drybulk fleet expanded at a higher pace due to a significant year-over-year decline in demolition activity.

Total operating expenses were $52.6 million for the three months ended June 30, 2017 compared to $132.6 million for the three months ended June 30, 2016. During the three months ended June 30, 2017, a $3.3 million impairment loss was recorded as of June 30, 2017, as the Company determined that the sum of the estimated undiscounted future cash flows for the Genco Surprise, a 1998-built Panamax vessel, would not exceed the carrying value of the vessel. Additionally, as of June 30, 2017, we recorded a gain on sale of vessel in the amount of $1.3 million due to the sale of the Genco Prosperity during Q2 2017. During the three months ended June 30, 2016, a $67.6 million impairment loss was recorded in order to adjust the value of nine of our vessels to their estimated net realizable value as of June 30, 2016, as the Company determined that the sale or scrapping of these vessels was more likely than not based on the terms of the commitment letter of the $400 Million Credit Facility. Vessel operating expenses declined to $23.9 million for the three months ended June 30, 2017 compared to $28.5 million for the three months ended June 30, 2016. This decrease was primarily due to the operation of fewer vessels during the second quarter of 2017 as compared to the same period of the prior year. The decrease was also due to lower expenses related to crewing and insurance as well as the timing of purchases of stores partially offset by higher drydocking related expenses. General and administrative expenses were $5.8 million for the second quarter of 2017 compared to $11.6 million for the second quarter of 2016, primarily due to a decrease in nonvested stock amortization expense. Included in general and administrative expenses is nonvested stock amortization expense of $1.6 million and $5.4 million for the second quarter of 2017 and 2016, respectively. Depreciation and amortization expenses decreased to $18.2 million for the three months ended June 30, 2017 from $19.7 million for the three months ended June 30, 2016, primarily due to the operation of fewer vessels in the second quarter of 2017 as well as the revaluation of ten of our vessels to their estimated net realizable value during the first half of 2016.

Daily vessel operating expenses, or DVOE, decreased to $4,333 per vessel per day for the second quarter of 2017 compared to $4,511 per vessel per day for the same quarter of 2016, predominantly due to lower expenses related to crewing and insurance as well as the timing of purchases of stores, partially offset by higher drydocking related expenses. 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. For the six months ended June 30, 2017 our DVOE decreased to $4,364 from $4,542 for the same period of 2016. Based on estimates provided by our technical managers and management’s views, our DVOE budget for 2017 is $4,440 per vessel per day on a weighted average basis for the entire year for the core fleet of 60 vessels.

Apostolos Zafolias, Chief Financial Officer, commented, “Our year-over-year results improved and reflected higher spot market rates achieved by the majority of the vessels in our fleet. This enabled Genco to increase its cash position to $181 million at the end of the second quarter, further enhancing our financial flexibility. We also continued to focus on cost management initiatives in the quarter, enabling Genco to maintain break-even levels among the lowest in the industry.”

Financial Review: First Half 2017

The Company recorded a net loss of $30.1 million or $0.89 basic and diluted net loss per share for the six months ended June 30, 2017. This compares to a net loss of $165.1 million or $22.87 basic and diluted net loss per share for the six months ended June 30, 2016. Basic and diluted net loss per share for the six months ended June 30, 2016 has been adjusted for the one-for-ten reverse stock split of Genco’s common stock effected on July 7, 2016. Net loss for the six months ended June 30, 2017 and 2016, includes non-cash vessel impairment charges of $3.3 million and $69.3 million, respectively. Net loss for the six months ended June 30, 2017 also includes the gain on sale of vessels in the amount of $7.7 million due to the sale of five vessels during the period. Revenues increased to $83.6 million for the six months ended June 30, 2017 compared to $52.8 million for the six months ended June 30, 2016 due to higher spot market rates achieved by the majority of our vessels partially offset by the operation of fewer vessels. TCE rates obtained by the Company increased to $7,458 per day for the six months ended June 30, 2017 from $3,622 per day for the six months ended June 30, 2016, due to higher rates achieved by the majority of the vessels in our fleet. Total operating expenses for the six months ended June 30, 2017 and 2016 were $99.4 million and $200.5 million, respectively. Total operating expenses, excluding a non-cash vessel impairment charge of $3.3 million relating to the revaluation of the Genco Surprise to its fair value as of June 30, 2017 and the gain on sale of vessels of $7.7 million, were $103.8 million for the six months ended June 30, 2017. This compares to adjusted total operating expenses, which excludes non-cash vessel impairment charges totaling $69.3 million relating to the revaluation of ten vessels to their estimated net realizable value, of $131.3 million for the six months ended June 30, 2016. We believe the presentation of the adjusted amounts above is useful to investors in understanding our current performance and financial condition, as it excludes items that may not be indicative of our core operating results. General and administrative expenses for the six months ended June 30, 2017 decreased to $10.7 million as compared to $22.2 million for the same period of 2016, primarily due to a decrease in nonvested stock amortization expense. Daily vessel operating expenses per vessel were $4,364 versus $4,542 in the comparative periods predominantly due to lower expenses related to crewing and insurance, as well as the timing of purchases of spares and stores partially offset by higher drydocking related expenses.

After the second quarter of 2017, the Company decided to dispose of the five 1999-built vessels in its fleet at times and on terms to be determined in the future. Since the estimated future undiscounted cash flows for each of these vessels did not exceed their net book values, we have adjusted their values to fair market value and will incur an impairment loss of approximately $19 million in the third quarter of 2017.

Liquidity and Capital Resources

Cash Flow

Net cash used in operating activities for the six months ended June 30, 2017 and 2016 was $0.6 million and $41.2 million, respectively. Included in the net loss during the six months ended June 30, 2017 and 2016 are $3.3 million and $72.0 million of non-cash impairment charges, respectively. Also included in the net loss during the six months ended June 30, 2017 and 2016 are $2.3 million and $10.9 million, respectively, of non-cash amortization of nonvested stock compensation related to the Company’s equity incentive plans. There was also a gain on sale of vessels in the amount of $7.7 million due to the sale of five vessels and paid in kind interest of $3.0 million related to the $400 Million Credit Facility during the six months ended June 30, 2017. Depreciation and amortization expense for the six months ended June 30, 2017 decreased by $3.7 million primarily due to the operation of fewer vessels in the second quarter of 2017 as well as the revaluation of ten of our vessels to their estimated net realizable value during the first half of 2016. Additionally, the fluctuation in prepaid expense and other current assets decreased by $8.8 million due to the timing of prepaid payments made and the hull and machinery insurance claims for repairs of the Genco Tiger and Baltic Lion. Lastly, there was a $4.2 million increase in deferred drydocking costs incurred because there were more vessels that completed drydocking during the six months ended June 30, 2017 as compared to the same period during 2016. This was offset by an increase in the fluctuation in accounts payable and accrued expenses of $2.9 million due to the timing payments.

Net cash provided by investing activities was $17.0 million during the six months ended June 30, 2017 as compared to $3.7 million during the six months ended June 30, 2016.  The increase is primarily due to a $13.6 million increase in the proceeds from the sale of five vessels during the six months ended June 30, 2017 as compared to the scrapping of one vessel during the six months ended June 30, 2016. Additionally, there was a $1.8 million decrease in deposits of restricted cash during the six months ended June 30, 2017 primarily as a result of the release of restricted cash for required capital expenditures for our vessels. These increases were partially offset by a decrease of $2.4 million for the proceeds from the sale of available-for-sale securities for the six months ended June 30, 2016.

Net cash used in financing activities was $2.7 million and $26.9 million during the six months ended June 30, 2017 and 2016, respectively.  Net cash used in financing activities of $2.7 million for the six months ended June 30, 2017 consisted primarily of the following:  $1.1 million payment of Series A Preferred Stock issuance costs; $1.4 million repayment of debt under the 2014 Term Loan Facilities; and $0.2 million repayment of debt under the $400 Million Credit Facility.  Net cash used in financing activities of $26.9 million for the six months ended June 30, 2016 consisted primarily of the following: $10.2 million repayment of debt under the $253 Million Term Loan Facility, $6.0 million repayment of debt under the $148 Million Credit Facility, $3.8 million repayment of debt under the $100 Million Term Loan Facility, $3.3 million repayment of debt under the 2015 Revolving Credit Facility, $1.4 million repayment of debt under $44 Million Term Loan Facility, $1.4 million repayment of debt under the 2014 Term Loan Facilities; and $0.8 million repayment of debt under the $22 Million Term Loan Facility.  On November 15, 2016, the $400 Million Credit Facility refinanced the following six credit facilities: the $253 Million Term Loan Facility, the $148 Million Credit Facility, the $100 Million Term Loan Facility, the 2015 Revolving Credit Facility, the $44 Million Term Loan Facility and the $22 Million Term Loan Facility.

Capital Expenditures

We make capital expenditures from time to time in connection with vessel acquisitions. As of August 7, 2017, our fleet consists of 13 Capesize, six Panamax, four Ultramax, 21 Supramax, one Handymax and 15 Handysize vessels with an aggregate capacity of approximately 4,688,000 dwt.

In addition to acquisitions that we may undertake in future periods, we will incur additional capital expenditures due to special surveys and drydockings for our fleet. Four of our vessels completed drydocking during the second quarter of 2017. We currently expect five of our vessels to be drydocked during the remainder of 2017 including one Capesize, two Panamax and two Supramax vessels.

We estimate our capital expenditures related to drydocking for our fleet through 2017 to be:

Q3 2017 Q4 2017
Estimated Costs (1) $3.2 million $0.9 million
Estimated Offhire Days (2) 80 20

(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 from operations. These costs do not include drydock expense items that are reflected in vessel operating expenses or potential costs associated with the installation of ballast water treatment systems.

(2) Actual length will vary based on the condition of the vessel, yard schedules and other factors.

Four of our vessels completed drydocking during the second quarter of 2017 while one other vessel began drydocking during the end of the second quarter. The offhire days recorded for these vessels during the second quarter of 2017 due to scheduled drydocking amounted to 100.6 days. Capitalized costs associated with drydocking incurred during the second quarter of 2017 were approximately $2.5 million.

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.

Three Months Ended
June 30, 2017
  Three Months Ended
June 30, 2016
Six Months Ended
June 30, 2017
  Six Months Ended
June 30, 2016
(Dollars in thousands, except share and per share data) (Dollars in thousands, except share and per share data)
(unaudited) (unaudited)
INCOME STATEMENT DATA:
Revenues:
Voyage revenues $   45,370 $   31,460 $   83,619 $   51,590
Service revenues   414   1,225
Total revenues   45,370   31,874   83,619   52,815
Operating expenses:
Voyage expenses   951   3,074   4,192   6,970
Vessel operating expenses   23,852   28,538   48,736   57,665
General and administrative expenses (inclusive of nonvested stock amortization   5,752   11,589   10,661   22,158
expense of $1.6 million, $5.4 million, $2.3 million and $10.9 million respectively)
Technical management fees   1,871   2,264   3,852   4,550
Depreciation and amortization   18,185   19,686   36,358   40,025
Other operating income   (182 )   (182 )
Impairment of vessel assets   3,339   67,594   3,339   69,278
(Gain) loss on sale of vessels   (1,343 )   77   (7,712 )   77
Total operating expenses   52,607   132,640   99,426   200,541
Operating loss   (7,237 )   (100,766 )   (15,807 )   (147,726 )
Other (expense) income:
Impairment of investment   (2,696 )   (2,696 )
Other expense   (50 )   (50 )   (115 )   (174 )
Interest income   338   33   512   95
Interest expense   (7,564 )   (7,013 )   (14,702 )   (14,127 )
Other expense   (7,276 )   (9,726 )   (14,305 )   (16,902 )
Loss before reorganization items, net   (14,513 )   (110,492 )   (30,112 )   (164,628 )
Reorganization items, net   (65 )   (160 )
Loss before income taxes   (14,513 )   (110,557 )   (30,112 )   (164,788 )
Income tax expense   (96 )   (350 )
Net loss $   (14,513 ) $   (110,653 ) $   (30,112 ) $   (165,138 )
Net loss per share – basic $   (0.42 ) $   (15.32 ) $   (0.89 ) $   (22.87 )
Net loss per share – diluted $   (0.42 ) $   (15.32 ) $   (0.89 ) $   (22.87 )
Weighted average common shares outstanding – basic   34,430,766   7,221,735   33,965,835   7,220,265
Weighted average common shares outstanding – diluted   34,430,766   7,221,735   33,965,835   7,220,265
June 30, 2017   December 31, 2016
BALANCE SHEET DATA:  (unaudited)
Cash (including restricted cash) $   180,995 $   169,068
Current assets   184,354   172,605
Total assets   1,541,719   1,568,960
Current liabilities (excluding current portion of long-term debt)   22,003   24,373
Current portion of long-term debt   9,576   4,576
Long-term debt (net of $10.2 million and $11.4 million of unamortized debt issuance   506,044   508,444
costs at June 30, 2017 and December 31, 2016, respectively)
Shareholders’ equity   1,001,868   1,029,699
Six Months Ended
June 30, 2017
Six Months Ended
June 30, 2016
(unaudited)
Net cash used in operating activities $   (585 ) $   (41,230 )
Net cash provided by investing activities   17,022   3,697
Net cash used in financing activities   (2,684 )   (26,879 )
Three Months Ended
June 30, 2017
  Three Months Ended
June 30, 2016
Six Months Ended
June 30, 2017
  Six Months Ended
June 30, 2016
(Dollars in thousands) (Dollars in thousands)
EBITDA Reconciliation: (unaudited) (unaudited)
Net loss $   (14,513 ) $   (110,653 ) $   (30,112 ) $   (165,138 )
+ Net interest expense   7,226   6,980   14,190   14,032
+ Income tax expense   96   350
+ Depreciation and amortization   18,185   19,686   36,358   40,025
EBITDA(1) $   10,898 $   (83,891 ) $   20,436 $   (110,731 )
Three Months Ended Six Months Ended  
June 30, 2017   June 30, 2016 June 30, 2017   June 30, 2016
GENCO CONSOLIDATED FLEET DATA: (unaudited) (unaudited)
Total number of vessels at end of period   60   69   60   69
Average number of vessels (2)   60.5   69.5   61.7   69.8
Total ownership days for fleet (3)   5,505   6,326   11,167   12,696
Total available days for fleet (4)   5,264   6,146   10,650   12,321
Total operating days for fleet (5)   5,086   6,107   10,415   12,177
Fleet utilization (6) 96.6 % 99.4 % 97.8 % 98.8 %
AVERAGE DAILY RESULTS:
Time charter equivalent (7) $   8,439 $   4,618 $   7,458 $   3,622
Daily vessel operating expenses per vessel (8)   4,333   4,511   4,364   4,542

1) EBITDA represents net income (loss) plus net interest expense, taxes, and depreciation and amortization. EBITDA is included because it is used by management and certain investors as a measure of operating performance. EBITDA is used by analysts in the shipping industry as a common performance measure to compare results across peers. Our management uses EBITDA as a performance measure in consolidating internal financial statements and it is presented for review at our board meetings. For these reasons, we believe that EBITDA is a useful measure to present to our investors. EBITDA is not an item recognized by U.S. GAAP (i.e. non-GAAP measure) and should not be considered as an alternative to net income, operating income or any other indicator of a company’s operating performance required by U.S. GAAP. EBITDA is not a source of liquidity or cash flows as shown in our consolidated statement of cash flows. The definition of EBITDA used here may not be comparable to that used by other companies.
2) Average number of vessels is the number of vessels that constituted our fleet for the relevant period, as measured by the sum of the number of days each vessel was part of our fleet during the period divided by the number of calendar days in that period.
3) We define ownership days as the aggregate number of days in a period during which each vessel in our fleet has been owned by us. Ownership days are an indicator of the size of our fleet over a period and affect both the amount of revenues and the amount of expenses that we record during a period.
4) We define available days as the number of our ownership days less the aggregate number of days that our vessels are off-hire due to scheduled repairs or repairs under guarantee, vessel upgrades or special surveys and the aggregate amount of time that we spend positioning our vessels between time charters. Companies in the shipping industry generally use available days to measure the number of days in a period during which vessels should be capable of generating revenues.
5) We define operating days as the number of our available days in a period less the aggregate number of days that our vessels are off-hire due to unforeseen circumstances. The shipping industry uses operating days to measure the aggregate number of days in a period during which vessels actually generate revenues.
6) We calculate fleet utilization by dividing the number of our operating days during a period by the number of our available days during the period. The shipping industry uses fleet utilization to measure a company’s efficiency in finding suitable employment for its vessels and minimizing the number of days that its vessels are off-hire for reasons other than scheduled repairs or repairs under guarantee, vessel upgrades, special surveys or vessel positioning.
7) We define TCE rates as our net voyage revenue (voyage revenues less voyage expenses (including voyage expenses to Parent)) divided by the number of our available days during the period, which is consistent with industry standards. TCE rate is a common shipping industry performance measure used primarily to compare daily earnings generated by vessels on time charters with daily earnings generated by vessels on voyage charters, because charterhire rates for vessels on voyage charters are generally not expressed in per-day amounts while charterhire rates for vessels on time charters generally are expressed in such amounts.
8) We define daily vessel operating expenses to include crew wages and related costs, the cost of insurance expenses relating to repairs and maintenance (excluding drydocking), the costs of spares and consumable stores, tonnage taxes and other miscellaneous expenses. Daily vessel operating expenses are calculated by dividing vessel operating expenses by ownership days for the relevant period.

LEAVE A COMMENT

×

Comments are closed.