Genco Shipping & Trading Limited, the largest U.S. headquartered drybulk shipowner focused on the global transportation of commodities, today 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
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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
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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
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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.
Dividend Policy
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.
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).
Key Q1 2023 dividend items: during the first quarter of 2023, we paid down $8.75 million of debt on a voluntary basis, representing our run rate voluntary quarterly debt repayment. This amount was deducted from operating cash flow in our first quarter dividend payment. Drydocking, ballast water treatment system and energy saving device costs related to one vessel that drydocked during the first quarter compared to four vessels that drydocked during the previous quarter. Furthermore, our reserve for Q1 2023 was $2.19 million as noted above. 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, we plan to set the reserve on a quarterly basis for the subsequent quarter, and it is anticipated to be based on future quarterly debt repayments and interest expense.
Q2 2023 reserve: The quarterly reserve for the second quarter of 2023 is expected to be $10.75 million. The reserve was determined based on voluntary debt repayments anticipated to be made as well as estimated cash interest expense on our debt and remains subject to our Board of Directors’ discretion. The quarterly debt repayment and reserve will be reassessed on a quarterly basis in advance by the Board of Directors and management. Estimated expenses, debt repayments, and capital expenditures for Q2 2023 are estimates presented for illustrative purposes. Maintaining a quarterly reserve as well as optionality for the uses of the reserve are important factors of our corporate strategy that are intended to allow Genco to retain liquidity to take advantage of a variety of market conditions. Anticipated uses for the reserve include, but are not limited to, vessel acquisitions, debt repayments and general corporate purposes.
The Board expects to reassess the payment of dividends as appropriate from time to time. 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 facility) 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.
Genco’s Active Commercial Operating Platform and Fleet Deployment Strategy
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 potential in major bulk rates together with the relative stability of minor bulk rates.
Financial Review: 2023 First Quarter
The Company recorded net income for the first quarter of 2023 of $2.6 million, or $0.06 basic and diluted earnings per share, respectively. Comparatively, for the three months ended March 31, 2022, the Company recorded net income of $41.7 million, or $0.99 and $0.97 basic and diluted earnings per share, respectively.
The Company’s revenues decreased to $94.4 million for the three months ended March 31, 2023, as compared to $136.2 million recorded for the three months ended March 31, 2022, primarily due to lower rates earned by our major and minor bulk vessels. The average daily time charter equivalent, or TCE, rates obtained by the Company’s fleet was $13,947 per day for the three months ended March 31, 2023 as compared to $24,093 per day for the three months ended March 31, 2022. In the first quarter of 2023, spot freight rates softened due to various seasonal factors including the timing of the Chinese New Year, timing of frontloaded newbuilding deliveries, as well as a decline in cargo volumes due to maintenance and poor weather conditions in various export regions. Towards the end of the first quarter of 2023, the freight market began to strengthen driven by the subsiding of a portion of these factors as well as China’s continued economic reopening.
Voyage expenses were $37.4 million for the three months ended March 31, 2023 compared to $38.5 million during the prior year period. Vessel operating expenses decreased to $24.4 million for the three months ended March 31, 2023 from $27.0 million for the three months ended March 31, 2022. The decrease is explained in the DVOE section of the below paragraph. General and administrative expenses increased to $7.8 million for the first quarter of 2023 compared to $6.0 million for the first quarter of 2022, primarily due to an increase in non-cash stock amortization expenses, as well as higher legal and professional fees. Depreciation and amortization expenses increased to $15.9 million for the three months ended March 31, 2023 from $14.1 million for the three months ended March 31, 2022, primarily due to an increase in drydocking amortization expense for the major bulk vessels that completed their respective drydockings during the second quarter of 2022 through the first quarter of 2023.
Daily vessel operating expenses, or DVOE, amounted to $6,160 per vessel per day for the first quarter of 2023 compared to $6,839 per vessel per day for the first quarter of 2022. The decrease was primarily due to lower COVID-19 related expenses in 2023 over the same period last year, as well as reduced repair and maintenance costs. We experienced those higher costs last year as we completed the transition of vessels to our new technical management joint venture through the first half of 2022. 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 manager, our DVOE budget for Q2 2023 is $6,250 per vessel per day on a fleet-wide basis including an estimate for COVID-19 related expenses. The potential impacts of the war in Ukraine and COVID-19 are unpredictable, and the actual amount of our DVOE could be higher or lower than budgeted as a result.
Apostolos Zafolias, Chief Financial Officer, commented, “During the first quarter, we demonstrated our commitment to further reducing debt levels and delivering on our strategy to pay meaningful quarterly dividends. Specifically, we continued to voluntarily pay down debt in Q1, bringing our cash flow breakeven rate down to industry lows, a core differentiator for Genco. Moving forward, we maintain significant flexibility and financial strength to continue delivering under the three pillars of our comprehensive value strategy focused on dividends, deleveraging and growth.”
Liquidity and Capital Resources
Cash Flow
Net cash provided by operating activities for the three months ended March 31, 2023 and 2022 was $19.6 million and $52.6 million, respectively. This decrease in cash provided by operating activities was primarily due to lower rates earned by our major and minor bulk vessels and changes in working capital. Additionally, there was an increase in drydocking costs incurred during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.
Net cash used in investing activities for the three months ended March 31, 2023 and 2022 was $2.9 million and $47.0 million, respectively. This decrease was primarily due to a $43.5 million decrease in the purchase of vessels primarily as a result of the purchase of two Ultramax vessels that delivered during the first quarter of 2022.
Net cash used in financing activities during the three months ended March 31, 2023 and 2022 was $30.4 million and $77.1 million, respectively. The decrease is primarily due to the additional $40.0 million debt repayment made under the $450 Million Credit Facility during the first quarter of 2022. Additionally, there was a $6.6 million decrease in the payment of dividends during the three months ended March 31, 2023 as compared to March 31, 2022.
Capital Expenditures
As of May 3, 2023, Genco Shipping & Trading Limited’s fleet consists of 17 Capesize, 15 Ultramax and 12 Supramax vessels with an aggregate capacity of approximately 4,635,000 dwt and an average age of 11.2 years.
Source: Genco Shipping & Trading
