Genco Shipping & Trading Limited, 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, 2021.
The following financial review discusses the results for the three months ended March 31, 2021 and March 31, 2020.
First Quarter 2021 and Year-to-Date Highlights
- Announced Genco’s new comprehensive value strategy in April 2021
This strategy is centered on low financial leverage and three key tenets:
- Attractive quarterly dividends based on cash flow after debt service less a reserve
- Further debt reduction, and
- Growth of the fleet
As part of Genco’s new corporate strategy, we have taken the following initial steps in the year-to-date:
- Paid down debt by $48.2 million during the first quarter of 2021
- Agreed to acquire a fuel efficient, 2016-built 64,000 dwt Ultramax vessel
- We utilized the strong market to fix three vessels on period time charters to secure cash flows as part of our portfolio approach to fixture activity and in line with the execution of our value strategy:
- Genco Liberty (2016-built Capesize): fixed at $31,000 per day for 10 to 13 months
- Genco Magic (2014-built Ultramax): fixed at $25,000 per day for 5 to 7 months
- Genco Pyrenees (2010-built Supramax): fixed at $23,000 per day for 5 to 7 months
- Genco increased its regular quarterly cash dividend to $0.05 per share for the first quarter of 2021 while also progressing towards achieving the targets under the new comprehensive value strategy during a rising freight rate environment
- Payable on or about May 25, 2021 to all shareholders of record as of May 17, 2021
- We have now declared cumulative dividends totaling $0.805 per share over the last seven quarters
- Genco is targeting Q4 2021 results for its anticipated first dividend under its new corporate strategy, which would be payable in Q1 2022
- We recorded net income of $2.0 million for the first quarter of 2021
- Basic and diluted earnings per share of $0.05
- Adjusted net income of $2.7 million or basic and diluted adjusted earnings per share of $0.06, excluding a $0.7 million loss on sale of vessels
- Voyage revenues totaled $87.6 million and net revenue1 (voyage revenues minus voyage expenses and charter hire expenses) totaled $47.1 million during Q1 2021
- Our average daily fleet-wide time charter equivalent, or TCE1, for Q1 2021 was $12,197
- We estimate our TCE to date for Q2 2021 to be $20,653 for 74% owned fleet available days, based on current fixtures
- Recorded adjusted EBITDA of $20.6 million during Q1 20211
- Maintained a strong financial position with $164.0 million of cash, including $40.8 million of restricted cash, as of March 31, 2021
John C. Wobensmith, Chief Executive Officer, commented, “Genco commenced 2021 by taking important steps aimed at differentiating the company and unlocking significant long-term value for shareholders. Drawing on our robust balance sheet, we implemented a new corporate strategy based on low financial leverage, growth and paying a compelling quarterly dividend throughout the shipping cycles. Our new strategy also complements our fleet composition, given the significant upside and operating leverage of the Capesize sector, together with the more stable earnings profile of minor bulk vessels.”
Mr. Wobensmith continued, “We are pleased to have already made progress toward implementation, as we plan for our first dividend under our new strategy. Year-to-date, we have reduced our debt balance by $48 million while growing within the core Ultramax sector. Importantly, our latest opportunistic purchase marks the fourth Ultramax added to the fleet since December 2020 and highlights our balance sheet strength and versatility to simultaneously de-lever and expand our asset base. We also increased our first quarter cash dividend to $0.05 per share, representing our seventh consecutive quarterly dividend and totaling $0.805 per share since initiating our dividend policy reflecting the strength of the current freight market.”
Mr. Wobensmith concluded, “Our outlook for the drybulk market remains positive given the record low orderbook as a percentage of the fleet and the low threshold for demand catalysts to drive fleet-wide utilization higher. To capitalize on the strong market, we have secured cash flows through select medium to long term time charters at firm levels as part of our portfolio approach towards revenue generation, while ensuring that we maintain significant operating leverage in a strengthening market. We also intend to continue to opportunistically purchase assets on a low levered basis as we further position the Company to increase its dividend.”
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.
New Comprehensive Value Strategy
Genco’s new comprehensive value strategy is centered on low financial leverage, paying quarterly cash dividends to shareholders based on cash flows after debt service less a reserve, and growth of the Company’s asset base. We believe this strategy will be a key differentiator for the Company and drive shareholder value over the long-term.
Drawing on one of the strongest balance sheets in the industry, Genco intends to use a phased in approach to further reduce its debt and refinance its current credit facilities in order to lower its cash flow breakeven levels and position the Company to pay a sizeable quarterly dividend across diverse market environments. We maintain significant flexibility to grow the fleet through accretive vessel acquisitions. Genco is targeting Q4 2021 results for its anticipated first dividend under its new corporate strategy, which would be payable in Q1 2022.
In implementing this strategy, the Company will focus on the following specific priorities for the remainder of 2021:
Continue to pay down debt through regularly scheduled quarterly repayments and prepayments from a combination of cash flow generation and cash on the balance sheet;
Opportunistically grow the fleet on a low levered basis utilizing proceeds from previous vessel sales; and
Refinance credit facilities to increase flexibility, improve key terms and lower cash flow breakeven rates
Given the above action items, Genco’s year-end targets for implementation of the strategy based on management’s current estimates are:
Net loan-to-value ratio of 20% based on current market values
Cash balance of approximately $75 million, with cash above this level used to pay down debt
Given the continued strengthening of the current freight rate environment, we may be in a position to have a lower net loan-to-value ratio than our year-end target.
New Dividend Policy
As part of Genco’s new corporate 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
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 at the discretion of our Board of Directors and is anticipated to be based on future quarterly debt repayments and interest expense. 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.
For the first quarter of 2021, Genco declared a cash dividend of $0.05 per share, which is an increase from $0.02 per share paid under its policy in the previous four quarters. This quarterly dividend increase was attributable to Genco’s strong financial position, the current freight rate environment as well as management’s go-forward drybulk market expectations. 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.
Credit Facility Update
As of March 31, 2021, Genco had $401.0 million of debt outstanding, gross of unamortized deferred financing costs. During the first quarter of 2021, Genco paid down a total of $48.2 million of debt including a prepayment of its revolving credit facility. We currently have remaining availability under our revolver of $19.2 million. After the repayment of the revolver as well as the resetting of quarterly debt amortization under our $495 Million Credit Facility following debt pay downs and vessel sales, our scheduled Q2 2021 quarterly debt repayment is expected to be $16.3 million, as compared to $20.2 million during Q1 2021, a $3.9 million reduction or a decline of 19%. We are currently evaluating refinancing our credit facilities to improve key terms and further reduce our cash flow breakeven rates.
Genco’s active commercial operating platform and fleet deployment strategy
Overall, our fleet deployment strategy 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, we estimate the following to be our TCE to date for the second quarter of 2021 on a load-to-discharge basis. Actual rates for the second quarter will vary based upon future fixtures. We have approximately seven Capesize vessels coming open in the coming weeks during this strong market, of which we plan to ballast two of these vessels to the Atlantic basin.
Capesize: $24,911 for 72% of the owned available Q2 2021 days
Ultramax and Supramax: $17,795 for 76% of the owned available Q2 2021 days
Fleet average: $20,653 for 74% of the owned available Q2 2021 days
Our first quarter of 2021 TCE results by class are listed below.
Ultramax and Supramax: $11,687
Fleet average: $12,197
During the first quarter of 2021, we hedged a portion of our fleet-wide available days through select time charter and forward cargo coverage in anticipation of a seasonally softer first quarter. However, the market experienced a counter-seasonal rise in freight rates during the period. Going forward, we intend to maintain our opportunistic, spot-oriented chartering approach as can be seen by the improvement in TCE to date in the second quarter relative to the first quarter.
Additionally, we continue to evaluate longer term period time charters following the three fixtures we have entered into below:
Genco Liberty (2016-built Capesize): fixed at $31,000 per day for 10 to 13 months
Genco Magic (2014-built Ultramax): fixed at $25,000 per day for 5 to 7 months
Genco Pyrenees (2010-built Supramax): fixed at $23,000 per day for 5 to 7 months
In April 2021, the Company entered into an agreement to acquire a 2016-built 64,000 dwt Ultramax vessel constructed at Zhejiang Yangfan shipyard in China. The vessel, to be renamed Genco Enterprise, is expected to be delivered to Genco between May and July 2021.
In February 2021, the Company completed the acquisition of three modern, fuel-efficient Ultramax vessels in exchange for six older Handysize vessels. With the conclusion of the transactions, Genco has now fully exited the Handysize sector while creating a more focused fleet consisting of Capesize, Ultramax and Supramax vessels.
Separate from the above, we have delivered the Baltic Leopard, a 2009-built 53,000 dwt Supramax, to the new owner. We have also agreed to sell our final 53,000 dwt Supramax vessel, the Genco Lorraine. We expect to deliver the vessel to the new owner in the second quarter of 2021. Completion of these sales will conclude the vessel divestiture portion of our fleet renewal program.
As of March 31, 2021, $40.5 million of restricted cash is recorded on our balance sheet relating to the sale of six vessels which were sold in previous quarters, as well as an additional three vessels sold during the first quarter of 2021. Under the terms of our $495 Million Credit Facility, the Company can either repay this amount, which represents the debt associated with these vessels, or utilize the 360-day reinvestment period to redeploy this capital towards the acquisition of a replacement vessel instead of repaying the loan, if the applicable terms and conditions under the facility are met.
Financial Review: 2021 First Quarter
The Company recorded net income for the first quarter of 2021 of $2.0 million, or $0.05 basic and diluted earnings per share. Comparatively, for the three months ended March 31, 2020, the Company recorded a net loss of $120.4 million, or $2.87 basic and diluted net loss per share. Net income for the three months ended March 31, 2021, includes a loss on sale of vessels of $0.7 million. Net loss for the three months ended March 31, 2020, includes non-cash vessel impairment charges of $112.8 million as well as a $0.5 million loss on sale of vessels.
The Company’s revenues decreased to $87.6 million for the three months ended March 31, 2021, as compared to $98.3 million recorded for the three months ended March 31, 2020, primarily due to the operation of fewer vessels in our fleet, partially offset by higher rates achieved by our fleet. The average daily time charter equivalent, or TCE, rates obtained by the Company’s fleet was $12,197 per day for the three months ended March 31, 2021 as compared to $9,755 per day for the three months ended March 31, 2020. During the first quarter of 2021, the drybulk market experienced its best start to a year in over a decade led by unprecedented levels of global stimulus, a recovery in Brazilian iron ore exports, continued robust demand in China together with improvement in demand seen in the rest of the world. These demand catalysts have been met by limited net fleet growth due to the historically low orderbook as a percentage of the fleet.
Voyage expenses were $35.1 million for the three months ended March 31, 2021 compared to $48.4 million during the prior year period. This decrease was primarily attributable to the operation of fewer vessels in our fleet, as well as a decrease in bunker consumption. Vessel operating expenses decreased to $19.0 million for the three months ended March 31, 2021 from $21.8 million for the three months ended March 31, 2020, primarily due to fewer owned vessels, as well as lower drydocking expenses, partially offset by higher crew related expenses. General and administrative expenses increased to $6.1 million for the first quarter of 2021 compared to $5.8 million for the first quarter of 2020, primarily due to higher legal and professional fees. Depreciation and amortization expenses decreased to $13.4 million for the three months ended March 31, 2021 from $17.6 million for the three months ended March 31, 2020, primarily due to a decrease in depreciation for vessels that were sold during the second half of 2020 and first quarter of 2021, as well as a decrease in depreciation for certain vessels in our fleet that were impaired during 2020.
Daily vessel operating expenses, or DVOE, amounted to $4,887 per vessel per day for the first quarter of 2021 compared to $4,413 per vessel per day for the first quarter of 2020. This increase is primarily attributable to COVID-19 related expenses and higher crew related expenses, as well as higher spares and maintenance related expenditures, partially offset by lower drydocking expenditures. 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 2021 is $5,000 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 first quarter, we announced a new corporate strategy, drawing on our success at creating one of the strongest balance sheets in the drybulk industry and our historically prudent capital allocation approach. We repaid $48 million of debt so far this year, as part of our first step in executing our new corporate policy. We believe that the strength of our balance sheet combined with the firm freight rate environment positions Genco well to return cash to shareholders while also continuing to act opportunistically and grow our fleet. During the first quarter, we also declared our seventh consecutive quarterly dividend, increasing the payout to $0.05 per share.”
Liquidity and Capital Resources
Net cash provided by operating activities for the three months ended March 31, 2021 was $13.5 million as compared to net cash used in operating activities of $4.0 million for the three months ended March 31, 2020. This increase in cash provided by operating activities was primarily due to higher rates achieved by our minor bulk vessels, changes in working capital, as well as a decrease in drydocking related expenditures.
Net cash provided by investing activities during the three months ended March 31, 2021 and 2020 was $20.0 million and $5.6 million, respectively. This fluctuation was primarily due to an increase in net proceeds from the sale of vessels during the first quarter of 2021 as compared to the first quarter of 2020, as well as a decrease in scrubber related expenditures.
Net cash used in financing activities during the three months ended March 31, 2021 and 2020 was $49.1 million and $14.3 million, respectively. The increase was primarily due to the $21.2 million repayment of the revolver under the $133 Million Credit Facility during the first quarter of 2021. Additionally, this increase was due to the $11.3 million drawdown on the $495 Million Credit Facility during the first quarter of 2020, as well as an $8.8 million increase in debt repayments under the $495 Million Credit Facility during the first quarter of 2021 as compared to the first quarter of 2020. These increases were partially offset by $6.4 million decrease in the payment of dividends during the first quarter of 2021 as compared to the first quarter of 2020.