Genco Shipping & Trading Limited Announces Third Quarter Financial Results

Initiates a Regular $0.175 Per Share Quarterly Cash Dividend Policy

Declares a $0.325 Per Share Special Dividend

New York - Nov 06, 2019

Genco Shipping & Trading Limited (NYSE:GNK) (“Genco” or the “Company”), the largest U.S. headquartered drybulk shipowner focused on the transportation of major and minor bulk commodities globally, today reported its financial results for the three months and nine months ended September 30, 2019.

The following financial review discusses the results for the three and nine months ended September 30, 2019 and September 30, 2018.

Third Quarter 2019 and Year-to-Date Highlights
• Initiated a regular quarterly dividend policy with a dividend of $0.175 per share for the third quarter of 2019
  - Payable on or about December 5, 2019 to all shareholders of record as of November 21, 2019
• Declared a special dividend of $0.325 per share, utilizing net cash proceeds from recently agreed upon vessel sales after paying down associated debt
  - Payable on or about December 5, 2019, to all shareholders of record as of November 21, 2019
• Following the payment of this aggregate dividend of $0.50 per share, Genco intends to maintain an industry leading balance sheet with one of the lowest net leverage positions in the peer group
• Amended our credit facilities to provide more flexibility on capital allocation
• Continued to execute our comprehensive IMO 2020 strategy
  - Have installed exhaust gas cleaning systems (“scrubbers”) on 12 of our 17 Capesize vessels to date
• In October 2019, we completed the sale of two of our oldest Handysize vessels
  - Genco Challenger, 2003-built, delivered to buyers on October 10, 2019
  - Genco Champion, 2006-built, delivered to buyers on October 21, 2019
• We also agreed to sell our remaining two Panamax vessels
  - Genco Raptor and Genco Thunder, both 2007-built, are to be sold for an aggregate price of $20.6 million
  - Both vessels are expected to deliver to their new buyers during the fourth quarter of 2019
• Recorded a net loss of $14.6 million for the third quarter of 2019
  - Basic and diluted loss per share of $0.35
  - Adjusted net loss of $2.4 million or basic and diluted loss per share of $0.06, excluding $12.2 million in non-cash vessel impairment charges
• Net revenue (voyage revenues minus voyage expenses and charter hire expenses) totaled $55.3 million during the third quarter of 2019
• Our average daily fleet-wide time charter equivalent, or TCE1, for Q3 2019 was $11,687 marking an improvement of 58% compared to Q2 2019
• Based on current fixtures to date, we estimate our fourth quarter 2019 TCE to date to be $14,041 for 64% of our fleet-wide available days, an improvement of 20% compared to Q3 2019
• Recorded adjusted EBITDA of $22.7 million during Q3 20191




John C. Wobensmith, Chief Executive Officer, commented, “We are pleased to return cash to shareholders, highlighting favorable drybulk market fundamentals, Genco’s compelling prospects, and the strength of our balance sheet and liquidity position. With the declaration of both a sizeable special dividend and the initiation of a regular quarterly dividend policy, we are well positioned to create significant shareholder value, while maintaining our balance sheet strength. Today’s important development, which follows our acquisitions of fuel efficient, modern vessels last year, advances our capital allocation strategy and is a testament to the hard work our team has put into optimizing our leading platform over the past several years.”

Mr. Wobensmith continued, “During the third quarter, we have taken additional steps to strengthen Genco’s prospects. With the completion of our most significant drydocking quarter in Genco’s history behind us, we have fitted over two thirds of our Capesize fleet with exhaust gas cleaning systems to date, solidifying our ability to take advantage of a strengthening drybulk market in the fourth quarter and into 2020. As we continue to implement our comprehensive IMO strategy and near our target of 100% planned scrubber installation on our Capesize vessels ahead of January 1, 2020, we will have no scheduled drydockings for this portion of our fleet in 2020. Based on this proactive approach to investing in our fleet, we are poised to capture the upside of positive supply and demand fundamentals going forward, maximizing fleet-wide utilization in a drybulk market that has improved sequentially in each of the last three years.”

(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.

Initiation of Regular Quarterly Cash Dividend Policy and Declaration of Special Dividend

Credit Facility Amendments Providing Further Flexibility on Capital Allocation

Utilizing its industry leading balance sheet, Genco initiated a regular quarterly cash dividend policy of $0.175 per share, returning cash to shareholders. The Company has declared its first such dividend of $0.175 per share for the third quarter of 2019. This dividend is payable on or about December 5, 2019, to all shareholders of record as of November 21, 2019.

Also, utilizing net cash proceeds from the recently announced agreed upon sales of four vessels after the repayment of associated debt, Genco has declared a $0.325 per share special dividend. This dividend is payable on or about December 5, 2019, to all shareholders of record as of November 21, 2019.

Management and the Board of Directors took into account several considerations with regard to the special dividend and the initiation of a quarterly dividend. These include Genco’s solid balance sheet and strong liquidity position as well as strengthening drybulk market fundamentals. Following the payment of this cumulative $0.50 per share dividend, Genco expects to continue to have one of the lowest net leverage positions among its peer group.

In relation to the initiation of dividends, we have amended previous restrictions on dividends and share repurchases in our credit facilities, providing Genco with the flexibility to use its strong liquidity position to improve shareholder returns in the form of dividends or share repurchases. We have amended the dividend and share repurchase covenants in our credit facilities such that Genco may pay dividends as follows: 1) to the extent our total unrestricted cash and cash equivalents is greater than $100 million and 18.75% of total indebtedness, whichever is higher; 2) if the collateral maintenance test ratio is more than 200%, or 3) in an amount limited to 50% of the previous quarter’s net income. Dividends going forward remain subject to approval of our Board of Directors each quarter after its review of our financial performance and will depend upon various factors, including limitations under our credit agreements and applicable provisions of Marshall Islands law.

For U.S. federal income tax purposes, we currently estimate that the recently declared special dividend and quarterly dividend will first be treated as a nontaxable return of capital to stockholders to the extent of their basis in our common stock and then as capital gain, although the tax treatment of the dividends will be based in part on our earnings and profits for the year ending December 31, 2019, which will not be determined until after the end of this year. For further details, please refer to our current report on Form 8-K filed today to which this release is an exhibit.

IMO 2020 Update
To date, we have installed scrubbers on 12 of our 17 Capesize vessels, representing a 71% completion rate. We currently have three other vessels in the shipyard being fitted with scrubbers and expect to have the remaining two Capesize vessels enter the shipyard to commence installation in the coming weeks. Therefore, we expect to complete our scrubber installation program ahead of the January 1, 2020 International Maritime Organization’s (“IMO”) compliance date limiting sulfur content in fuel consumed by vessels from 3.5% to 0.5% on a global basis. We expect that, in addition to meeting the compliance date, this will provide us with experience operating these systems prior to the regulations entering into force. We anticipate that our remaining fleet of minor bulk vessels will consume ultra-low sulfur compliant fuel following implementation of the IMO regulations.

The third quarter of 2019 marked our busiest quarter of drydocking of the year and a record for the Company. We had 22 vessels enter the shipyard for scrubber installations, ballast water treatment system installations, scheduled special surveys and other repairs, resulting in associated offhire time of 601 days for the quarter.

With our entire Capesize fleet of 17 vessels to enter the shipyard this year for scrubber fitting in addition to any scheduled special surveys and ballast water treatment system installations, 2019 has represented a year of substantial capital expenditure in this core portion of our fleet. This also limited our commercial trading capabilities in the short-term. This resulted in our Capesize fleet remaining in the Pacific basin, a region that saw rates trade at a discount to the Atlantic basin, notwithstanding our long-term commercial strategy that entails a more dynamic vessel positioning to better capture market fundamentals. We view this as an investment in our Capesize fleet this year as we look to maximize Capesize utilization in 2020, since we will have no scheduled drydockings for these vessels, positioning Genco to capture market upside potential going forward.

Based on current fixtures to date, we estimate the following to be our TCE to date for the fourth quarter of 2019. These initial fixtures for this period are reflective of more normalized trading patterns, particularly on our Capesize vessels, as we are over 70% complete with our scrubber fitting program.

• Capesize: $19,779 for 62% of the available Q4 2019 days
• Panamax: $12,322 for 51% of the available Q4 2019 days
• Ultramax and Supramax: $12,113 for 67% of the available Q4 2019 days
• Handysize: $11,838 for 62% of the available Q4 2019 days
• Fleet average: $14,041 for 64% of the available Q4 2019 days

Fleet Update
We continue to divest our older, less efficient tonnage as part of our efforts to renew our fleet while reducing our carbon footprint. In October 2019, the Company completed the sales of two Handysize vessels. Specifically, we sold the Genco Challenger, a 2003-built Handysize vessel, on October 10, 2019, and the Genco Champion, a 2006-built Handysize vessel, on October 21, 2019. These ships were sold for gross prices of $5.3 million and $6.6 million, respectively.

We have also agreed to sell our two remaining Panamaxes which are expected to deliver to their new owners in Q4 2019. Specifically, we reached agreements to sell the Genco Thunder and the Genco Raptor, both 2007-built Panamaxes, for a gross price of $20.6 million in aggregate. Following the completion of these two sales, Genco will have fully exited the Panamax sector as we continue to execute our barbell approach to fleet composition and create a more focused fleet.

Financial Review: 2019 Third Quarter
The Company recorded a net loss for the third quarter of 2019 of $14.6 million, or $0.35 basic and diluted net loss per share. Comparatively, for the three months ended September 30, 2018, the Company recorded net income of $5.7 million, or $0.14 basic and diluted net earnings per share.

The Company’s revenues increased to $103.8 million for the three months ended September 30, 2019, as compared to the $92.3 million recorded for the three months ended September 30, 2018. The increase in revenues was primarily due to increased employment of vessels on spot market voyage charters partially offset by the effect of trading our Capesize vessels primarily in the Pacific basin and offhire related to scrubber installations, ballast water treatment system installations and special surveys as noted above. The average daily time charter equivalent, or TCE, rates obtained by the Company’s fleet was $11,687 per day for the three months ended September 30, 2019 as compared to $10,696 per day for the three months ended September 30, 2018. In the third quarter of 2019, the drybulk market improved significantly reaching multi-year highs in the process. Specifically, the Baltic Capesize Index was supported by record steel production in China and increased Brazilian iron ore shipments under a backdrop of constrained vessel capacity due to the global fleet’s preparation ahead of IMO 2020.

Total operating expenses were $111.5 million for the three months ended September 30, 2019 compared to $80.2 million for the three months ended September 30, 2018. During the three months ended September 30, 2019, $12.2 million in non-cash impairment charges were recorded in relation to the anticipated sale of the Genco Thunder, the Genco Champion and the Genco Raptor. During the three months ended September 30, 2018, a $1.5 million gain on sale of vessels was recorded. Voyage expenses rose to $43.0 million for the three months ended September 30, 2019 versus $31.5 million during the prior year period primarily due to the increased employment of vessels on spot market voyage charters as part of our commercial strategy, in which we incur significantly higher voyage expenses as compared to time charters, spot market-related time charters and pool arrangements. Vessel operating expenses decreased to $24.7 million for the three months ended September 30, 2019, from $25.2 million for the three months ended September 30, 2018 primarily due to fewer owned vessels, partially offset by higher drydocking related expenses. General and administrative expenses increased to $6.1 million for the third quarter of 2019 compared to $5.0 million for the third quarter of 2018, primarily due to an increase in compensation related expenses as well as an increase in professional fees. Depreciation and amortization expenses increased to $18.2 million for the three months ended September 30, 2019 from $17.3 million for the three months ended September 30, 2018, primarily due to depreciation expense for the six vessels delivered during the third quarter of 2018, partially offset by a decrease in depreciation expense for the eight vessels that were sold during the second half of 2018 and the first quarter of 2019, as well as a decrease for the five vessels that were impaired during the second and third quarters of 2019.

Daily vessel operating expenses, or DVOE, amounted to $4,631 per vessel per day for the third quarter of 2019 compared to $4,434 per vessel per day for the third quarter of 2018. The increase in DVOE was predominantly due to higher drydocking related expenses. 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.

Apostolos Zafolias, Chief Financial Officer, commented, “By successfully amending our credit facilities, we have provided Genco with the ability to capitalize on its strong liquidity position to return cash to shareholders. Specifically, we have eased previous restrictions on dividends and share repurchases, which has enabled us to declare a special dividend and initiate a regular quarterly dividend. We appreciate the ongoing support of our banking group and their confidence in our leading platform, balance sheet strength and industry fundamentals.”

Financial Review: Nine Months 2019
The Company recorded a net loss of $56.9 million or $1.36 basic and diluted net loss per share for the nine months ended September 30, 2019. This compares to a net loss of $51.2 million or $1.37 basic and diluted net loss per share for the nine months ended September 30, 2018. Net loss for the nine months ended September 30, 2019 includes $26.1 million in non-cash vessel impairment charges, a $0.2 million non-cash impairment of the operating lease right-of-use asset, as well as a gain on sale of vessels totaling $0.6 million. Net loss for the nine months ended September 30, 2018, includes non-cash vessel impairment charges of $56.6 million, a $1.5 million gain on sale of vessels as well as a loss on debt extinguishment in the amount of $4.5 million. Revenues increased to $280.8 million for the nine months ended September 30, 2019 compared to $255.3 million for the nine months ended September 30, 2018 primarily due to increased employment of vessels on spot market voyage charters, partially offset by the effect of trading our Capesize vessels primarily in the Pacific basin and offhire related to scrubber installations, ballast water treatment system installations and special surveys as noted above during the third quarter of 2019. Voyage expenses increased to $127.8 million for the nine months ended September 30, 2019 from $78.6 million for the same period in 2018. This was primarily due to the increase of employment of vessels on spot market voyage charters during 2019 as part of our commercial strategy, in which we incur significantly higher voyage expenses as compared to time charters, spot market-related time charters and pool arrangements. TCE rates obtained by the Company decreased to $9,405 per day for the nine months ended September 30, 2019 from $10,710 per day for the nine months ended September 30, 2018, due to lower rates achieved by the majority of the vessels in our fleet. Total operating expenses for the nine months ended September 30, 2019 and 2018 were $316.8 million and $280.8 million, respectively. Total operating expenses include $26.1 million in non-cash vessel impairment charges, as well as a gain on sale of vessels of $0.6 million for the nine months ending September 30, 2019. For the nine months ended September 30, 2018, total operating expenses include non-cash vessel impairment charges of $56.6 million relating to the revaluation of certain vessels that comprise our fleet renewal plan to their respective fair values as well as a gain on the sale of vessels of $1.5 million. General and administrative expenses for the nine months ended September 30, 2019 increased to $18.3 million as compared to the $16.8 million in the same period of 2018. DVOE was $4,556 versus $4,394 in the comparative periods. The increase in DVOE was predominantly due to higher drydocking related expenses, as well as crew related expenses. EBITDA for the nine months ended September 30, 2019 amounted to $18.9 million compared to $20.9 million during the prior period. During the nine months of 2019 and 2018, EBITDA included non-cash impairment charges, an operating lease right-of-use asset non-cash impairment, gains on sale of vessels, and loss on debt extinguishment as mentioned above. Excluding these items, our adjusted EBITDA would have amounted to $44.6 million and $80.5 million, for the respective periods.

Liquidity and Capital Resources

Cash Flow

Net cash provided by operating activities for the nine months ended September 30, 2019 was $28.8 million as compared to $43.4 million for the nine months ended September 30, 2018. Included in the net loss during the nine months ended September 30, 2019 were $26.1 million of non-cash impairment charges, a gain of $0.6 million arising from the sale of the Genco Vigour, $0.9 million of non-cash lease expense and a loss of $0.2 million related to the non-cash impairment of our right-of-use operating lease asset. Included in the net loss during the nine months ended September 30, 2018 were $56.6 million of non-cash impairment charges, as well as a $4.5 million loss on the extinguishment of debt, a gain of $1.5 million arising from the sale of two vessels and a $5.3 million payment on the $400 Million Credit Facility. Depreciation and amortization expense for the nine months ended September 30, 2019 increased by $3.9 million primarily due to depreciation expense for the six vessels delivered during the third quarter of 2018, partially offset by a decrease in depreciation expense for the eight vessels that were sold during the second half of 2018 and the first quarter of 2019. Additionally, there was an $8.2 million increase in the fluctuation in due from charterers due to the timing of payments received from charterers and a $5.3 million increase in the fluctuation in prepaid expenses and other current assets due to the timing of payments. Lastly, there was a $21.2 million increase in the fluctuation in inventories associated with vessels on spot market voyage charters. These increases were partially offset by a $9.7 million increase in deferred drydocking costs as there were more vessels that completed drydocking during the nine months ended September 30, 2019 as compared to the same period during 2018. There was also a $5.1 million and $3.1 million decrease in the fluctuation of deferred revenue and accounts payable and accrued expenses, respectively, due to the timing of payments made.

Net cash used in investing activities was $31.8 million during the nine months ended September 30, 2019 as compared to $226.5 million during the nine months ended September 30, 2018. Net cash used in investing activities during the nine months ended September 30, 2019 consisted primarily of $24.7 million for the purchase of scrubbers for our vessels, $10.4 million for the purchase of vessels related primarily to ballast water treatment systems and $3.6 million for the purchase of other fixed assets due to the purchase of vessel equipment. These cash outflows during the nine months ended September 30, 2019 were partially offset by $6.3 million of proceeds from the sale of one vessel during the first half of 2019. Net cash used in investing activities during the nine months ended September 30, 2018 consisted primarily of $239.7 million purchase of vessels related to the six vessels that delivered to us during the third quarter of 2018. This cash outflow during the nine months ended September 30, 2018 was partially offset by $10.6 million proceeds from the sale of two vessels during the third quarter of 2018 and $3.5 million of proceeds received for hull and machinery claims related primarily to the receipt of the remaining insurance settlement for the main engine repair claim for the Genco Tiger.

Net cash used in financing activities during the nine months ended September 30, 2019 was $33.5 million as compared to net cash provided by financing activities of $144.2 million during the nine months ended September 30, 2018. Net cash used in financing activities of $33.5 million for the nine months ended September 30, 2019 consisted primarily of the following: $49.6 million repayment of debt under the $495 Million Credit Facility; $4.7 million repayment of debt under the $108 Million Credit Facility; $0.6 million payment of deferred financing costs; and $0.1 million payment of common stock issuance costs. These cash outflows were partially offset by total drawdowns of $21.5 million under the $495 Million Credit Facility during the nine months ended September 30, 2019. Net cash provided by financing activities of $144.2 million for the nine months ended September 30, 2018 consisted primarily of the $460.0 million drawdown on the $460 Million Credit Facility, the $108.0 million drawdown on the $108 Million Credit Facility and the net proceeds from the issuance of common stock on June 19, 2018 of $109.8 million partially offset by the following: $399.6 million repayment of debt under the $400 Million Credit Facility; $93.9 million repayment of debt under the $98 Million Credit Facility; $25.5 million repayment of debt under the 2014 Term Loan Facilities; $11.5 million payment of deferred financing costs; and $3.0 million payment of debt extinguishment costs. On August 14, 2018, we entered into the $108 Million Credit Facility to finance a portion of the purchase price for the six vessels acquired during the third quarter of 2018. On June 5, 2018, the $495 Million Credit Facility refinanced the following three existing credit facilities with its original $460 million tranche; the $400 Million Credit Facility, the $98 Million Credit Facility and the 2014 Term Loan Facilities. Additionally, on February 28, 2019, the $495 Million Credit Facility was amended to add a tranche of $35 million for the purchase of scrubbers in addition to the original $460 million tranche used for the refinancing on June 5, 2018.

Full report

Genco Shipping & Trading Limited press release