Genco Shipping & Trading Limited — Q1 2017 Form 10-Q
Reporting period: Three months ended March 31, 2017. Financial amounts below are in U.S. dollars; statement amounts are in millions unless noted. The filing’s financial statements are unaudited.
Business context
Genco owns and operates drybulk vessels transporting cargo worldwide. At March 31, the company reported 61 vessels with approximately 4.735 million deadweight tons and an average fleet age of about 9.3 years. It uses time charters, spot-market-related time charters and vessel pools. During Q1, it gave notice to withdraw Supramax vessels from the Clipper Sapphire Pool; it gave notice in May to withdraw Handysize vessels from the Clipper Logger Pool.
Financial performance and liquidity
- Revenue: $38.2 million, up 82.6% from $20.9 million. Voyage revenue rose 90.0% to $38.2 million; service revenue was zero versus $0.8 million in Q1 2016.
- Operating result and margins: Operating loss was $8.6 million, compared with $47.0 million. Operating margin was approximately -22.4%, versus -224.3% in the prior period.
- Net result: Net loss was $15.6 million, or $0.47 per share, versus a $54.5 million loss, or $7.55 per share. Net margin was approximately -40.8%, versus -260.2%. Weighted-average common shares increased to 33.5 million from 7.2 million.
- EBITDA: $9.5 million, compared with negative $26.8 million. EBITDA is a company-presented non-GAAP measure and is not cash flow.
- Operating metrics: Fleet-average time charter equivalent (TCE) rate increased 147.2% to $6,498 per available day from $2,629. Fleet utilization was 99.1%, versus 98.5%. Ownership days declined 11.1% to 5,662 as the fleet contracted.
- Costs: Vessel operating expenses fell 14.6% to $24.9 million; daily vessel operating expense declined 3.9% to $4,395. General and administrative expense fell 53.6% to $4.9 million, mainly reflecting lower nonvested stock compensation expense.
- Cash flow: Cash used in operating activities was $6.0 million, versus $27.3 million used. Investing activities provided $13.2 million, principally from vessel-sale proceeds; financing activities used $1.7 million. Cash and cash equivalents ended the quarter at $138.9 million, up from $133.4 million.
- Balance sheet: Total assets were $1.551 billion and equity was $1.015 billion. Gross debt, including PIK interest and before unamortized financing costs, was $525.1 million; reported debt net of financing costs was $514.3 million. Restricted cash totaled $35.0 million. Current assets were $173.7 million versus current liabilities of $27.3 million.
- Interest and debt: Q1 interest expense was $7.1 million. Debt is predominantly floating-rate; management estimated that a 1 percentage-point increase in LIBOR would raise Q1 interest expense by $1.3 million. The company elected to pay 1.5% of interest in kind on the $400 million facility, adding $1.5 million of PIK interest in Q1.
Changes versus Q1 2016
- Higher drybulk rates drove the improvement: TCE increased across all vessel classes, and voyage revenue rose despite fewer operating days.
- Reported losses narrowed substantially, aided by a $6.4 million gain on vessel sales, lower operating costs, reduced stock compensation and no repeat of the prior-year $1.7 million vessel impairment or $0.1 million of reorganization expense.
- Four vessels were sold during Q1, generating $12.6 million of net sale proceeds. The fleet’s lower vessel count reduced operating and management costs, but also reduced revenue-generating capacity.
- The preferred shares issued in the 2016 capital raise converted into 27.1 million common shares on January 4, 2017. Common shares outstanding rose from 7.35 million at year-end to 34.42 million at March 31.
Outlook, risks and unusual items
- Management said the November 2016 debt refinancing and $125 million capital raise were expected to address liquidity and covenant needs for at least 12 months under current market conditions. It cautioned that prolonged weak or worsening shipping markets could leave the company unable to fund operations or meet debt obligations, potentially causing a default.
- Management reported compliance at March 31 with financial covenants under the $400 million facility, the Restated $98 million facility and the 2014 Term Loan Facilities. These facilities impose restrictions, including limits on dividends; the longest stated dividend restriction runs through December 31, 2020. Cash sweeps and minimum-liquidity requirements also apply.
- Future minimum time-charter revenue from vessels committed to noncancelable contracts was estimated at $24.0 million for the remainder of 2017 and $2.7 million for 2018 as of May 5. This excludes pool and spot-market-related employment and profit sharing, so it is not a full revenue forecast.
- Two vessels, Genco Tiger and Baltic Lion, were expected to be off hire into Q2 for main-engine repairs. Management expected loss-of-hire insurance to cover lost revenue days after a 14-day deductible, at $20,000 per day, but said recognition depended on underwriter approval, potentially not before Q3.
- Estimated drydocking costs were $7.5 million for the remainder of 2017 and $3.4 million for 2018. Ballast-water treatment rules could add capital costs; the filing gives estimated system costs by vessel class but does not provide a consolidated total.
- The filing describes an appeal in litigation related to the 2015 Baltic Trading merger. The company said it could not reasonably estimate any loss, but did not believe a material financial reporting consequence was probable.
- Vessel-sale accounting contributed a material $6.4 million gain. One vessel, Genco Prosperity, remained held for sale at quarter-end. The filing gives differing anticipated sale dates in separate passages: May 20 and June 15, 2017.
Important facts for investors to verify
- Whether higher freight rates and TCE levels persisted after Q1, and how much of the fleet’s employment was exposed to spot-market rates or near-term charter expirations.
- Actual engine-repair duration, off-hire losses and insurance recovery for Genco Tiger and Baltic Lion.
- Compliance with debt covenants, required liquidity levels, cash-sweep obligations and the effect of further LIBOR increases.
- Final proceeds and timing for Genco Prosperity’s sale, and reconciliation of the filing’s May 20 versus June 15 expected dates.
- Funding needs for drydockings and ballast-water treatment systems, and whether operating cash flow can cover them under weaker market conditions.
- The impact of the common-share increase and any further equity-plan awards on per-share results and dilution.