Business context and reporting period
Genco Shipping & Trading Limited (NYSE: GNK) filed this unaudited Form 10-Q for the quarter ended March 31, 2019. It owns and operates a global drybulk fleet of 58 vessels, with approximately 5.1 million deadweight tons and an average age of 9.3 years. The company operates as one reportable segment.
Financial performance and position
Amounts below are in U.S. dollars; financial statement amounts are rounded to millions unless otherwise noted.
| Metric | Q1 2019 | Q1 2018 / prior date |
|---|---|---|
| Revenue | $93.5m | $76.9m |
| Operating loss | $0.9m | $48.4m loss |
| Net loss | $7.8m; $0.19 per share | $55.8m; $1.61 per share |
| EBITDA, non-GAAP | $17.5m | $31.6m loss |
| Operating cash flow | $11.6m | $9.5m |
| Cash, cash equivalents and restricted cash | $193.0m | $202.8m at Dec. 31, 2018 |
| Debt principal | $534.8m | $551.4m at Dec. 31, 2018 |
Revenue rose 21.5%, while the operating margin was approximately negative 0.9% and net margin approximately negative 8.3%. Average fleet time-charter-equivalent (TCE) earnings fell 11.8% to $9,230 per day. Cash decreased $9.8m during the quarter after $17.3m of financing outflows, including $16.6m of debt repayments. Investing cash flow was a $4.1m use. Total assets were $1.606bn and equity was $1.046bn at quarter-end.
Material changes versus the prior period
- Revenue increased mainly because more vessels operated on spot-market voyage charters. These charters increased voyage expenses to $43.0m from $21.1m; voyage expenses are generally borne by Genco under voyage charters.
- Q1 2019 operating results included no vessel impairment, compared with a $56.4m impairment in Q1 2018. The much smaller reported loss therefore reflects, in significant part, the absence of that prior-year charge.
- Spot-market voyage revenue rose to $70.1m from $34.1m, while time-charter lease revenue declined to $23.4m from $42.9m. TCE rates declined across the principal vessel classes; fleet utilization fell to 97.4% from 98.9%.
- In Q1 2019, Genco sold the Genco Vigour and recorded a $0.6m gain. The fleet renewal program also included six modern-vessel acquisitions in 2018 and the sale of older vessels.
- Weighted-average shares increased 20.7% year over year, to 41.7m, following the 2018 equity offering, among other share changes.
Outlook, risks and unusual items
- Management said market conditions had begun improving in Q2 as some disruptions eased and scrapping increased, but Q2 fixtures to date had lower TCEs than Q1 bookings, partly due to fixture timing and vessel repositioning. The filing gives no numerical earnings or revenue guidance.
- Management stated that capital resources were expected to fund operations for at least 12 months. It also anticipated higher cash outlays for debt amortization and environmental-compliance work in 2019.
- Estimated 2019 costs were $19.4m for drydocking, $8.9m for ballast-water treatment systems (BWTS), and $32.0m for scrubbers, plus an estimated 875 off-hire days. Scrubbers were planned for 17 Capesize vessels, with installation expected during 2019; estimates and timing may change. The remaining fleet was expected to use compliant low-sulfur fuel from 2020.
- A $35m delayed-draw tranche was added to the $495m credit facility to finance up to 90% of eligible scrubber costs. At March 31, $35m was available. The company reported compliance with financial covenants under both credit facilities. Unrestricted cash of $187.7m exceeded the stated minimum-liquidity covenant threshold, which is the greater of $30m or 7.5% of indebtedness.
- Debt is floating-rate and unhedged. Management estimated that a 1 percentage-point increase in LIBOR would increase quarterly interest expense by $1.4m. Debt and vessel collateral valuations, charter rates, fuel costs, trade tensions, China’s coal restrictions, and disruptions to iron-ore shipments are material sensitivities.
- On April 15, 2019, after quarter-end, Genco used $4.947m of restricted vessel-sale proceeds to prepay the $495m facility because no qualifying replacement vessel had been added as collateral within the required period. Scheduled principal payments were recalculated.
- The company adopted lease accounting standard ASC 842 on January 1, 2019, recording an office-lease right-of-use asset and liability. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Near-term charter exposure: as of May 8, most vessel charters were scheduled to expire between May and August 2019; verify subsequent fixtures, rates, and utilization.
- Whether the Q2 market improvement translated into stronger realized TCEs and cash generation.
- Actual scrubber and BWTS costs, installation schedules, off-hire days, financing draws, and compliant-fuel costs.
- Debt amortization, covenant headroom, collateral valuations, and the effect of LIBOR movements; distinguish debt principal from carrying value net of financing costs.
- Execution of management’s liquidity outlook against operating needs and disclosed environmental and drydocking commitments.