Genco , the largest U.S. headquartered drybulk shipowner focused on the global transportation of commodities, reported its financial results for the three months ended March 31, 2023.
The following financial review discusses the results for the three months ended March 31, 2023 and March 31, 2022.
First Quarter 2023 and Year-to-Date Highlights
- Declared a $0.15 per share dividend for the first quarter of 2023
- Q1 2023 dividend marks the Company’s 15th consecutive quarterly payout, reflecting cumulative dividends totaling $4.445 per share or approximately 31% of the closing share price on May 2, 2023
- Q1 2023 dividend is payable on or about May 23, 2023 to all shareholders of record as of May 16, 2023
- Prepaid $8.75 million of debt on a voluntary basis during Q1 2023, reducing our debt to $162.3 million at March 31, 2023
- Net loan-to-value of 11%1 as of May 3, 2023
- Since the start of 2021, we have paid down $287.0 million or 64% of our debt
- Recorded net income of $2.6 million for the first quarter of 2023
- Basic and diluted earnings per share of $0.06
- Voyage revenues totaled $94.4 million and net revenue2 (voyage revenues minus voyage expenses, charter hire expenses and realized gains or losses on fuel hedges) totaled $53.4 million during Q1 2023
- Our average daily fleet-wide time charter equivalent, or TCE,2 for Q1 2023 was $13,947
- We estimate our TCE to date for Q2 2023 to be $16,679 for 68% of our owned fleet available days, based on both period and current spot fixtures, which is 20% higher than Q1 2023 TCE2
- Genco has a light drydocking schedule for the balance of 2023 as the Company looks to maximize fleet-wide utilization during this improving drybulk market
- Recorded adjusted EBITDA of $19.9 million for Q1 20232
- Our liquidity position was $260.4 million as of March 31, 2023, consisting of:
- $50.4 million of cash on the balance sheet
- $210.0 million of revolver availability
John C. Wobensmith, Chief Executive Officer, commented, “Following a year during which we generated sizeable earnings and returned significant capital to shareholders, we continued to execute our value strategy in the first quarter of 2023 for the benefit of shareholders. Since implementing our differentiated value strategy in 2021, we have declared $3.39 in dividends, while continuing to pay down debt. Our first quarter dividend of $0.15 per share is our 15th consecutive dividend and reflects our commitment to shareholder returns despite quarterly rate volatility. We believe our balance sheet strength, available liquidity, and improving market expectations provide support to achieve our goal of continued and sizeable dividend payouts.”
Mr. Wobensmith continued, “Regarding the drybulk earnings environment, we have seen a significant uplift in freight rates beginning in March and carrying over into Q2 to date. This is reflected in our estimate of Q2 TCE to date of $16,679, which represents a 20% increase over Q1 2023 TCE. We anticipate improved commodity demand led by China’s reopening to coincide with the seasonal uplift in drybulk cargo volumes as the year progresses. Combined with a historically low orderbook, we believe these positive demand drivers bode well for increasing rates in the near term. We remain well positioned to draw on our sizeable and leading drybulk platform to capitalize on a strengthening market and create enduring shareholder value.”
1 Represents the principal amount of our credit facility debt outstanding less our cash and cash equivalents as of March 31, 2023 divided by estimates of the market value of our fleet as of May 3, 2023 from VesselsValue.com. The actual market value of our vessels may vary.
2 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 further reconciliation. Regarding Q2 2023 TCE, actual results will vary from current estimates.
Comprehensive Value Strategy
Genco’s comprehensive value strategy is centered on three pillars:
- Dividends: paying sizeable quarterly cash dividends to shareholders
- Deleveraging: through voluntary debt prepayments to maintain low financial leverage, and
- Growth: opportunistically growing the Company’s asset base
This strategy is a key differentiator for Genco, which we believe creates a compelling risk-reward balance to drive shareholder value over the long-term, 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. Key characteristics of our unique platform include:
- Industry low cash flow breakeven rate
- Net loan-to-value of 11% as of May 3, 2023
- Strong liquidity position of $260.4 million consisting of cash and our undrawn revolver as of March 31, 2023
- High operating leverage with our scalable fleet across the major and minor bulk sectors
Our debt outstanding as of March 31, 2023 was $162.3 million. In Q1 2023, we voluntarily paid down debt totaling $8.75 million, in line with our run rate quarterly voluntary debt repayment. Importantly, we have no mandatory debt amortization payments until 2026 when the facility matures. Regardless of this favorable 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.
For the first quarter of 2023, Genco declared a cash dividend of $0.15 per share. While our stated formula, with a quarterly reserve of $10.75 million, did not produce a dividend for the quarter, the Board of Directors elected on management’s recommendation to utilize $8.56 million of this reserve to declare the $0.15 per share dividend, resulting in a quarterly reserve of $2.19 million. A central component of Genco’s value strategy is maintaining a quarterly reserve, as well as the optionality for the use of the reserve as Genco seeks to pay sizeable dividends in diverse market environments. During the first quarter, the drybulk shipping markets experienced seasonal volatility in freight rates; however, Genco continued to voluntarily pay down debt. The drybulk market realized a significant rebound since March, and our positive outlook for the balance of the year, together with Genco’s industry low cash flow breakeven rate and low financial leverage, gave the Company confidence to utilize part of the quarterly reserve to declare a meaningful quarterly dividend. This represents our sixth dividend payment under our value strategy with cumulative dividends declared to date of $3.39 per share.
Under the quarterly dividend policy adopted by our Board of Directors, the amount available for quarterly dividends is to be calculated based on the formula in the table below. The table includes the calculation of the actual Q1 2023 dividend and estimated amounts for the calculation of the dividend for Q2 2023:
|Dividend calculation||Q1 2023 actual||Q2 2023 estimates|
|Net revenue||$||53.40||Fixtures + market|
|Operating cash flow||$||21.21|
|Less: debt repayments||(8.75||)||(8.75||)|
|Less: capex for dydocking/BWTS/ESDs||(3.81||)||(3.93||)|
|Cash flow distributable as dividends||$||6.47||Sum of the above|
|Number of shares to be paid dividends||43.1||43.1|
|Dividend per share||$||0.15|
|Numbers in millions except per share amounts|
|‘*Q1 2023 reserve reduced from $10.75m to $2.19m|
The quarterly reserve for the second quarter of 2023 under the Company’s dividend formula is expected to be $10.75 million. Subject to the development of freight rates for the remainder of the second quarter and our assessment of our liquidity and forward outlook, we maintain flexibility to reduce the quarterly reserve to pay dividends.
For purposes of the foregoing calculation, operating cash flow is defined as net revenue (consisting of voyage revenue less voyage expenses, charter hire expenses, and realized gains or losses on fuel hedges), less operating expenses (consisting of 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).