Gener8 Maritime reports second-quarter profit of $38 million

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Gener8 Maritime, Inc., a leading U.S.-based provider of international seaborne crude oil transportation services, announced its financial results for the three and six months ended June 30, 2016.

Highlights

  • Recorded net income of $38.0 million, or $0.46 basic and diluted earnings per share, for the three months ended June 30, 2016, a 91% increase compared to $19.9 million for the same period in the prior year. Recorded adjusted net income of $42.0 million, or $0.51 basic and diluted adjusted earnings per share, for the three months ended June 30, 2016, a 16.8% increase in adjusted net income compared to $35.9 million for the same period in the prior year.
  • Increased net voyage revenue (which are voyage revenues of $105.9 million less voyage expense of $4.2 million) by $22.1 million, or 27.7%, to $101.8 million for the three months ended June 30, 2016, compared to $79.7 million (representing voyage revenues of $116.5 million less voyage expense of $36.8 million) from the same period in the prior year.
  • Increased vessel operating days by 25.2% to 2,841 in the three months ended June 30, 2016 compared to 2,269 in the same period in the prior year.
  • Took delivery of three “ECO” newbuilding VLCCs, the Gener8 Nautilus, the Gener8 Andriotis and the Gener8 Constantine during the second quarter of 2016.
  • Entered into an amendment to the Sinosure Credit Facility to increase the total committed amount under the facility to up to $385.2 million which provides debt financing for the last two ECO VLCC newbuildings being built by Shanghai Waigaoqiao Shipbuilding Co. (“SWS”).
  • Entered into a memorandum of agreement in July 2016 for the sale of the 2001-built Genmar Vision for $28 million in gross proceeds.

“Following the deliveries of three ‘ECO’ VLCCs in the second quarter, more than half of our newbuilding fleet is now on the water. Our earnings potential has increased significantly, which is evident in our financial results,” said Peter Georgiopoulos, Chairman and Chief Executive Officer of Gener8 Maritime. “We are pleased to have reached an agreement to sell the 15-year old Genmar Vision, particularly ahead of a drydocking that was scheduled to occur later this year. The transaction is consistent with our strategy of fleet renewal and modernization and comes ahead of the eight ‘ECO’ VLCC newbuildings that are expected to be delivered to us during the remainder of this year. Our fleet is also becoming younger, based on average age, and more efficient, based on the expected cost savings of our ‘ECO’ VLCCs. This is important in a business that is both seasonal and cyclical in nature. Following the completion of our newbuilding program, which is expected in early 2017, and the expected sale of the Genmar Vision, the DWT-weighted average age of our fleet will be 4.7 years, and our VLCCs will have an average age of just 2.6 years, giving us the youngest VLCC fleet among our public company peers. We believe Gener8 Maritime will be well positioned to participate in what we expect will be a sustained period of strength in the tanker market.”

Leo Vrondissis, Chief Financial Officer, added, “We are also pleased to have amended our Sinosure Credit Facility, which together with our Korean Export Credit Facility, provide the requisite debt financing to fund the remainder of our newbuilding program. In an industry where capital has been difficult to access, we believe this is a reflection of our strong financial profile as well as the depth of our relationships in the lending community.”

Spot TCEs include all spot voyages for the Company’s vessels, including those that were in Navig8 pools.

Summary Results for the Three Months Ended June 30, 2016

The Company’s net income for the three months ended June 30, 2016 was $38.0 million, or $0.46 basic and diluted earnings per share, compared to net income of $19.9 million, or $0.38 basic and diluted earnings per share, for the same period in the prior year.

The Company recorded adjusted net income of $42.0 million, or $0.51 basic and diluted adjusted earnings per share, for the three months ended June 30, 2016, compared to adjusted net income of $35.9 million, or $0.68 basic and diluted adjusted earnings per share, for the same period in the prior year. Please refer to the tables at the end of this release for a reconciliation of adjusted net income to net income.

Adjusted EBITDA for the three months ended June 30, 2016 increased by $20.5 million to $71.0 million compared to $50.5 million for the same period in the prior year. Please refer to the tables at the end of this release for a reconciliation of adjusted EBITDA to net income.

The average daily spot TCE rates obtained by the Company’s VLCC fleet, including its vessels that were within Navig8 pools, was $44,806 for the three months ended June 30, 2016, an increase of $3,906, or 9.6%, from the same period in the prior year. The average daily TCE rate obtained by the company increased by $698, or 2.0%, to $35,825 for the three months ended June 30, 2016 compared to $35,127 for the prior year period.

Net Voyage Revenues

Voyage revenues decreased by $10.5 million, or 9.0%, to $105.9 million for the three months ended June 30, 2016, compared to $116.5 million for the prior year period. Voyage expenses decreased by $32.6 million, or 88.6%, to $4.2 million for the three months ended June 30, 2016 compared to $36.8 million for the prior year period.

The majority of the vessels in our fleet were deployed in pools managed by Navig8 Group during the three months ended June 30, 2016. Revenues from these pools are distributed on a net basis after deduction of voyage expenses, which are the responsibility of the pools. This reduces voyage revenues compared to spot charter revenues. As of June 30, 2016, we had 31 owned vessels in the Navig8 pools, which includes three additional newbuilding vessels that were deployed into the Navig8 pools during the three months ended June 30, 2016.

Our vessel operating days attributable to the Navig8 pools increased to 2,454 days for the three months ended June 30, 2016 compared to 92 days during the same period in the prior year. As a result, our Navig8 pool revenues increased to $92.4 million for three months ended June 30, 2016 compared to $4.2 million during the three months ended June 30, 2015.

The decrease in our time charter and spot charter revenues of $6.6 million and $92.1 million, to $2.0 million and $11.5 million, respectively, for the three months ended June 30, 2016, compared to $8.7 million and $103.6 million, respectively, for the prior year period, were primarily the result of the transition of our vessels into the Navig8 pools. In addition, the $32.6 million decrease in our voyage expenses to $4.2 million, compared to $36.8 million for the prior year period, was primarily the result of the transition of our vessels from the spot market into the Navig8 pools.

Net voyage revenues increased by $22.1 million, or 27.7%, to $101.8 million for the three months ended June 30, 2016 compared to $79.7 million for the prior year period. The increase in net voyage revenues was primarily attributable to a 33.6% increase in our average owned fleet size to 33.4 vessels and higher charter rates for our VLCCs compared to the period year period as well as decreased fuel costs, offset by lower utilization for the fleet for the current period due to increased drydocks. The increase in net voyage revenues was partially offset by the decrease in charter hire rates for the Suezmax and Aframax vessels during the three months ended June 30, 2016 compared to the prior year period. Additionally, included in our net voyage revenues for the three months ended June 30, 2015 were pool revenues associated with the chartered-in vessel Nave Quasar, which was redelivered to the owner in March 2016.

Direct Vessel Operating Expenses

Direct vessel operating expenses, which include crew costs, provisions, deck and engine stores, lubricating oil, insurance, maintenance and repairs for owned vessels increased by $4.4 million, or 20.7%, to $25.5 million for the three months ended June 30, 2016 compared to $21.1 million for the prior year period. The increase in direct vessel operating expenses for the three months ended June 30, 2016 was primarily due to increases in crew costs, insurance cost, lubrication oil and other costs, relating to an increase of 33.6% in the average size of our fleet during the three months ended June 30, 2016 as compared to the prior year period, partially offset by lower maintenance and repair costs for the three months ended June 30, 2016 as compared to the prior year period.

The increase in direct vessel operating expenses was partially offset by a decrease in daily direct vessel operating expenses per vessel of $887.0, or 9.5%, to $8,408 for the three months ended June 30, 2016 compared to $9,295 for the prior year period, primarily as a result of lower operating costs, including crew costs, insurance and other costs, associated with our newly delivered vessels. Additionally, during the three months ended June 30, 2015 we incurred severance charges related to a change in the vessel management of 7 vessels from our Portugal office to a third-party ship management company, which resulted in inclusion of a greater amount of third-party management fees in direct vessel operating expenses in the prior year period.

General and Administrative Expenses

General and administrative expenses decreased by $8.3 million, or 54.2%, to $7.0 million for the three months ended June 30, 2016 compared to $15.3 million for the three months ended June 30, 2015. The primary factor contributing to this was a decrease of $8.1 million, or 66.0%, to $4.2 million in employee compensation expense for the three months ended June 30, 2016 compared to $12.3 million in the prior year period. The decrease in employee compensation expense was primarily related to higher compensation costs of restricted stock units and option amortization in the prior year period. The decrease in general and administrative expenses was partially offset by an increase of $0.4 million in legal and professional expenses during the three months ended June 30, 2016 compared to the prior year period, primarily related to our debt financing and interest rate swaps, as well as other expenses associated with being a publicly traded company.

Also contributing to the decrease in general and administrative expenses was the dissolution of foreign subsidiaries and reduction in associated costs during the three months ended June 30, 2016 compared to the prior year period.

Depreciation and Amortization

Depreciation and amortization, which includes depreciation of vessels as well as amortization of drydock and special survey costs, increased by $9.0 million, or 81.8%, to $20.0 million for the three months ended June 31, 2016 compared to $11.0 million for the prior year period. Vessel depreciation increased by $8.4 million for the three months ended June 30, 2016, while amortization of drydocking costs increased by $0.5 million compared to $9.8 million and $1.1 million, respectively, for the prior year period. The increase in vessel depreciation and amortization of drydocking costs was primarily due to the increase in our fleet size and the additional drydocking costs incurred during the three months ended June 30, 2016 compared to the prior year period.

Interest Expense, net

Interest expense, net increased by $6.9 million, or 194.9%, to $10.4 million for the three months ended June 30, 2016 compared to $3.5 million for the prior year period. The increase was primarily attributable to the increase in our weighted average debt balance (excluding debt financing costs) of $468.0 million, or 58.3%, to $1,271.5 million for the three months ended June 30, 2016 compared to $803.5 million for the prior year period, primarily as a result of incurrence of additional debt relating to the delivery of our newbuilding vessels during the period and the accrual of payment-in-kind interest on our senior notes. The increase in interest expense was partially offset by increased capitalized interest of $3.7 million, or 91%, to $7.8 million for the three months ended June 30, 2016, as compared to $4.1 million for the three months ended June 30, 2015 related to the capitalization of interest expense associated with vessels under construction as a result of our acquisition of the 2014 and 2015 acquired VLCC newbuildings in the 2015 merger. During the three months ended June 30, 2016, we capitalized interest for both the 2014 and 2015 acquired VLCC newbuildings. We intend to cease capitalizing interest expense associated with the funding of the VLCC newbuildings after delivery of the vessels.

Subsequent events

On July 22, 2016, we entered into an agreement for the sale of the 2001-built VLCC tanker Genmar Vision for $28.0 million in gross proceeds, $19.4 million of which we intend to use to prepay a portion of the borrowings under the Refinancing Facility associated with the vessel. We intend to use the remaining net proceeds for general corporate purposes.

Gener8 Fleet

As of July 27, 2016, Gener8 Maritime has a fleet of 45 wholly-owned vessels, including its expected newbuilding deliveries. The Company’s fleet is comprised of 10 VLCC newbuildings and 35 vessels on the water consisting of 18 VLCC, 11 Suezmax, four Aframax, and two Panamax tankers, with a total carrying capacity of approximately 10.8 million deadweight tons (“DWT”) and average age on a DWT basis of 4.7 years upon delivery of the newbuildings and the expected closing of the sale of the Genmar Vision.

The Company has agreed to deploy each of its newbuilding VLCCs into the VL8 Pool managed by Navig8 Group upon their respective deliveries.

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