Genco Shipping & Trading Limited — Q1 2021 Form 10-Q
Business context and period. This unaudited filing covers the three months ended March 31, 2021, and compares results with Q1 2020. Genco transports drybulk cargo worldwide. At quarter-end it operated 41 vessels with approximately 4.42 million deadweight tons of capacity. Amounts below are U.S. dollars; financial statement amounts are converted from thousands to millions unless otherwise noted.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Voyage revenue | $87.6 million | $98.3 million; down 10.9% |
| Operating income (loss) | $6.3 million; 7.2% revenue margin | $(113.4) million, including $112.8 million vessel impairment |
| Net income (loss) | $2.0 million; diluted EPS $0.05 | $(120.4) million; diluted EPS $(2.87) |
| EBITDA (non-GAAP) | $19.9 million | $(96.4) million |
| Operating cash flow | $13.5 million | $(4.0) million |
| Investing cash flow | $20.0 million provided | $5.6 million provided |
| Financing cash flow | $(49.1) million | $(14.3) million |
| Cash, cash equivalents and restricted cash | $164.0 million, including $123.2 million unrestricted | $179.7 million at December 31, 2020 |
| Debt | $401.0 million principal; $392.3 million net carrying amount | $449.2 million principal at December 31, 2020 |
| Equity | $746.8 million | $745.0 million at December 31, 2020 |
Material changes and operating performance
- Revenue fell despite stronger minor-bulk earnings, primarily because Genco operated fewer vessels and its Capesize vessels achieved lower rates. Average fleet TCE rose 25% to $12,197 per day: major-bulk TCE declined 18.4% to $13,595, while minor-bulk TCE increased 72.9% to $11,303.
- Fleet utilization remained 97.8%. Ownership days declined 21.2%, reflecting vessel sales and fleet changes.
- Voyage expenses fell 27.5% to $35.1 million, and vessel operating expenses fell 12.7% to $19.0 million, largely due to fewer vessels. Daily vessel operating expenses nevertheless increased 10.7% to $4,887.
- Charter-hire expense increased 76.7% to $5.4 million. Depreciation and amortization declined 23.5% to $13.4 million. Interest expense decreased, with net interest expense down to $4.5 million from $6.4 million, mainly due to lower rates and debt.
- The swing to profit chiefly reflects the absence of the prior-year $112.8 million impairment charge; Q1 2021 results included no vessel impairment. Vessel sales and exchanges generated a $0.7 million net loss in Q1 2021.
- Debt principal declined by $48.2 million during the quarter, including repayment of the remaining $21.2 million revolver balance. The company also paid $0.9 million in dividends.
Liquidity, outlook, risks and unusual items
- Management stated that, if drybulk rates do not decline significantly, available resources should fund operations for at least 12 months. Unrestricted cash was $123.2 million versus an approximately $30 million minimum liquidity requirement. The $133 million facility had $19.2 million of revolver availability; the $495 million facility had none.
- Management reported compliance with financial covenants at March 31. Credit facilities require collateral vessel values of at least 135% of loan principal. Latest covenant valuations were below carrying values for most vessels; management reported an aggregate carrying-value excess of $159.9 million for the specified vessels, while stating the company remained compliant. Falling vessel values could require additional collateral, prepayment or lender relief.
- Management’s April 2021 value strategy prioritizes further debt reduction, refinancing to improve flexibility and lower cash-flow breakeven, and selective low-leverage fleet growth. A formula-based quarterly dividend policy is intended to begin with Q4 2021 results, with the first payment anticipated in Q1 2022; the amount will depend on operating cash flow, debt repayments, drydocking capital expenditures and board-determined reserves. This is a plan, not assured guidance.
- On May 4, 2021, after quarter-end, the board declared a $0.05-per-share dividend, expected to total approximately $2.1 million. The filing also reports an April 20 agreement to buy a 2016-built Ultramax for $20.2 million, expected to be funded with cash and debt, and completion of the Baltic Leopard sale on April 8. Genco Lorraine was expected to sell in Q2.
- Management described improving drybulk conditions and strong Q1 spot rates, but cautioned that recovery sustainability is uncertain. COVID-19, crew-change restrictions and associated deviations and costs, fuel and crew-cost increases, trade tensions, drybulk demand and freight-rate volatility, and vessel supply are key risks. Genco specifically reported crew-rotation difficulties and added costs related to the severe COVID-19 outbreak in India.
- Three interest-rate caps covered $200 million of floating-rate debt; a 1% LIBOR increase was estimated to raise interest expense by $1.1 million for the quarter. Restricted sale proceeds are subject to facility terms and may have to be used for replacement-vessel collateral or debt prepayment.
- The filing identifies ordinary-course personal-injury and property-casualty claims but no known legal proceedings expected to have a material effect. No material off-balance-sheet arrangements were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether Q1’s improved minor-bulk TCE and reported market strength translate into sustained earnings, particularly given lower Capesize TCE and short-term charter exposure.
- Debt repayment and refinancing progress, covenant headroom, vessel collateral valuations, restricted-cash release or prepayment requirements, and remaining revolver availability.
- The assumptions and execution behind the planned dividend policy, including reserves, capital expenditures, debt service and board discretion; distinguish the post-quarter $0.05 dividend from the policy’s anticipated 2022 start.
- Delivery and financing of the planned Ultramax acquisition, completion of the Genco Lorraine sale, and costs and schedule for drydockings and ballast-water-treatment installations.
- Exposure to COVID-19-related crew disruptions and costs, freight-rate volatility, fuel and operating-cost inflation, and the risk that vessel values decline further.