Genco posts net income of $57.1 million in third quarter

Genco

Genco, the largest U.S. headquartered drybulk shipowner focused on the global transportation of commodities, 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
Vessel Type Rate Duration Min Expiration
Genco Liberty Capesize $ 31,000 10-13 months Feb-22
Baltic Bear Capesize $ 32,000 10-14 months Mar-22
Baltic Wolf Capesize $ 30,250 22-28 months Jun-23
Genco Maximus Capesize $ 27,500 24-30 months Sep-23
Genco Vigilant Ultramax $ 17,750 11-13 months Sep-22
Genco Freedom Ultramax $ 23,375 20-23 months Mar-23
Baltic Hornet Ultramax $ 24,000 20-23 months Apr-23
Baltic Wasp Ultramax $ 25,500 23-25 months Jun-23

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.

Estimated net TCE – Q4 2021 to Date
Vessel Type Period Spot Fleet-wide % Fixed
Capesize $ 28,197 $ 51,288 $ 43,708 72 %
Ultramax/Supramax $ 23,109 $ 37,620 $ 32,143 71 %
Fleet-wide $ 25,024 $ 43,471 $ 36,879 71 %

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.

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