Genco Shipping & Trading Limited reported its financial results for the three and nine months ended September 30, 2017.

The following financial review discusses the results for the three and nine months ended September 30, 2017 and September 30, 2016.

Third Quarter 2017 and Year-to-Date Highlights

Recorded a net loss of $31.2 million for the third quarter of 2017
– Basic and diluted loss per share of $0.90
– Adjusted basic and diluted loss of $12.5 million or $0.36 per share, excluding $18.7 million non-cash impairment charge1
Established Singapore presence with the opening of a new office
– Appointed Ivo Kempenaer as Vice President and Commercial Director, Head of Major Bulks

Genco-Shipping-and-Trading-dry-bulk-carrier-BIG

Financial Review: 2017 Third Quarter

The Company recorded a net loss for the third quarter of 2017 of $31.2 million, or $0.90 basic and diluted net loss per share. Comparatively, for the three months ended September 30, 2016, the Company recorded a net loss of $27.5 million, or $3.80 basic and diluted net loss per share.

John C. Wobensmith, Chief Executive Officer, commented, “Heightened demand for seaborne iron ore, coal and minor bulks, combined with marginal net fleet growth, led to an improvement in the rate environment during the third quarter. We expect supply and demand fundamentals to further come into balance as we continue to implement initiatives to strengthen Genco’s commercial prospects. Following the steps taken earlier in the year to bolster our minor bulk operations, we recently established a Singapore presence and appointed an industry veteran to spearhead the employment of our major bulk fleet. Our success expanding our in-house commercial platform has enabled Genco to offer a full-scale logistics solution and has served to strengthen relationships with leading drybulk commodities producers and charterers around the world, positioning Genco to capitalize on a market recovery.”

The Company’s revenues increased to $51.2 million for the three months ended September 30, 2017, compared to $38.9 million for the three months ended September 30, 2016. The increase was primarily due to higher spot market rates achieved by the majority of the vessels in our fleet during the third quarter of 2017 versus the same period last year partially offset by the operation of fewer vessels during the third quarter of 2017 as compared to the third quarter of 2016.

The average daily time charter equivalent, or TCE, rates obtained by the Company’s fleet was $8,573 per day for the three months ended September 30, 2017 as compared to $5,779 for the three months ended September 30, 2016. The increase in TCE was primarily due to higher spot rates achieved by the majority of the vessels in our fleet during the third quarter of 2017 versus the third quarter of 2016. The drybulk freight market strengthened considerably during Q3 2017 as a result of record Chinese steel output which led to heightened demand for seaborne iron ore and coal cargoes. This increase in demand has been met with marginal net fleet growth so far in the second half of the year, leading to tighter tonnage availability across the sectors.

Total operating expenses were $74.9 million for the three months ended September 30, 2017 compared to $59.0 million for the three months ended September 30, 2016. During the three months ended September 30, 2017, an $18.7 million impairment loss was recorded as the Company determined that the sum of the estimated undiscounted future cash flows for each of Genco’s five 1999-built vessels that it decided to dispose of at a time and on terms to be determined would not exceed the carrying value of these vessels. Vessel operating expenses declined to $25.1 million for the three months ended September 30, 2017 compared to $28.5 million for the three months ended September 30, 2016. This decrease was primarily due to the operation of fewer vessels during the third quarter of 2017 as compared to the same period of the prior year. General and administrative expenses were $5.9 million for the third quarter of 2017 compared to $7.9 million for the third quarter of 2016, primarily due to a decrease in nonvested stock amortization expense. Included in general and administrative expenses is nonvested stock amortization expense of $1.3 million and $3.6 million for the third quarter of 2017 and 2016, respectively. Depreciation and amortization expenses decreased to $17.8 million for the three months ended September 30, 2017 from $18.1 million for the three months ended September 30, 2016, primarily due to the revaluation of our 1999-built vessels to their respective fair values during the third quarter of 2017.

Daily vessel operating expenses, or DVOE, increased to $4,553 per vessel per day for the third quarter of 2017 compared to $4,483 per vessel per day for the same quarter of 2016, predominantly due to the timing of drydocking related expenses and purchases of stores and spare parts partially offset by lower crew costs. 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. For the nine months ended September 30, 2017, our DVOE decreased to $4,427 from $4,523 for same period of 2016. Based on estimates provided by our technical managers and management’s views, our DVOE budget for 2017 is $4,440 per vessel per day on a weighted average basis for the entire year for the core fleet of 60 vessels.

Apostolos Zafolias, Chief Financial Officer, commented, “Maintaining a strong balance sheet remains a priority for Genco and provides us with the appropriate foundation to capitalize on a market recovery. We increased our cash position to $185 million at the end of the third quarter, highlighting an improving rate environment and Genco’s leading drybulk platform. As the market continues to come into balance, we expect that our low breakeven levels and strong operating platform will continue to benefit the Company.”

Financial Review: Nine Months 2017

The Company recorded a net loss of $61.3 million or $1.80 basic and diluted net loss per share for the nine months ended September 30, 2017. This compares to a net loss of $192.7 million or $26.65 basic and diluted net loss per share for the nine months ended September 30, 2016. Net loss for the nine months ended September 30, 2017 and 2016, includes non-cash vessel impairment charges of $22.0 million and $69.3 million, respectively. Net loss for the nine months ended September 30, 2017 also includes the gain on sale of vessels in the amount of $7.7 million due to the sale of five vessels during the period. Revenues increased to $134.8 million for the nine months ended September 30, 2017 compared to $91.7 million for the nine months ended September 30, 2016 due to higher spot market rates achieved by the majority of our vessels partially offset by the operation of fewer vessels. TCE rates obtained by the Company increased to $7,829 per day for the nine months ended September 30, 2017 from $4,341 per day for the nine months ended September 30, 2016, due to higher rates achieved by the majority of the vessels in our fleet. Total operating expenses for the nine months ended September 30, 2017 and 2016 were $174.4 million and $259.5 million, respectively. Adjusted total operating expenses, which excludes a non-cash vessel impairment charge of $22.0 million relating to the revaluation of Genco’s 1999-built vessels and the Genco Surprise to their respective fair values and the gain on sale of vessels of $7.7 million, were $160.1 million for the nine months ended September 30, 2017. This compares to adjusted total operating expenses, which excludes non-cash vessel impairment charges totaling $69.3 million relating to the revaluation of ten vessels to their estimated net realizable value, of $190.3 million for the nine months ended September 30, 2016. We believe the presentation of the adjusted amounts above is useful to investors in understanding our current performance and financial condition, as it excludes items that may not be indicative of our core operating results. General and administrative expenses for the nine months ended September 30, 2017 decreased to $16.6 million as compared to $30.1 million for same period of 2016, primarily due to a decrease in nonvested stock amortization expense. Daily vessel operating expenses per vessel were $4,427 versus $4,523 in the comparative periods predominantly due to lower expenses related to crewing and insurance partially offset by higher drydocking related expenses.

Liquidity and Capital Resources

Cash Flow

Net cash provided by operating activities for the nine months ended September 30, 2017 was $4.4 million as compared to net cash used in operating activities for the nine months ended September 30, 2016 of $45.9 million. Included in the net loss during the nine months ended September 30, 2017 and 2016 are $22.0 million and $72.0 million of non-cash impairment charges, respectively. Also included in the net loss during the nine months ended September 30, 2017 and 2016 are $3.5 million and $14.5 million, respectively, of non-cash amortization of nonvested stock compensation related to the Company’s equity incentive plans. There was also a gain on sale of vessels in the amount of $7.7 million due to the sale of five vessels and paid in kind interest of $4.6 million related to the $400 Million Credit Facility during the nine months ended September 30, 2017. Depreciation and amortization expense for the nine months ended September 30, 2017 decreased by $4.0 million primarily due to the operation of fewer vessels during the nine months ended September 30, 2017 as well as the revaluation of ten of our vessels to their estimated net realizable value during the first half of 2016. Additionally, the fluctuation in prepaid expenses and other current assets decreased by $11.1 million due to the timing of prepaid payments made, a portion of which includes the hull and machinery insurance claims for repairs of the Genco Tiger and Baltic Lion. Lastly, there was a $5.7 million increase in deferred drydocking costs incurred because there were more vessels that completed drydocking during the nine months ended September 30, 2017 as compared to the same period during 2016. This was offset by an increase in the fluctuation in accounts payable and accrued expenses of $6.2 million due to the timing payments.

Net cash provided by investing activities was $18.1 million during the nine months ended September 30, 2017 as compared to $5.1 million during the nine months ended September 30, 2016. The increase is primarily due to a $13.6 million increase in the proceeds from the sale of five vessels during the nine months ended September 30, 2017 as compared to the scrapping of one vessel during the nine months ended September 30, 2016. Additionally, there was a $3.1 million decrease in deposits of restricted cash during the nine months ended September 30, 2017 primarily as a result of the release of restricted cash for required capital expenditures for our vessels. These increases were partially offset by a decrease of $3.9 million for the proceeds from the sale of available-for-sale securities for the nine months ended September 30, 2016.

Net cash used in financing activities was $3.5 million and $40.3 million during the nine months ended September 30, 2017 and 2016, respectively. Net cash used in financing activities of $3.5 million for the nine months ended September 30, 2017 consisted primarily of the following: $1.1 million payment of Series A Preferred Stock issuance costs; $2.1 million repayment of debt under the 2014 Term Loan Facilities; and $0.3 million repayment of debt under the $400 Million Credit Facility. Net cash used in financing activities of $40.3 million for the nine months ended September 30, 2016 consisted primarily of the following: $15.2 million repayment of debt under the $253 Million Term Loan Facility, $9.0 million repayment of debt under the $148 Million Credit Facility, $5.8 million repayment of debt under the $100 Million Term Loan Facility, $4.9 million repayment of debt under the 2015 Revolving Credit Facility, $2.1 million repayment of debt under the $44 Million Term Loan Facility, $2.1 million repayment of debt under the 2014 Term Loan Facilities, and $1.1 million repayment of debt under the $22 Million Term Loan Facility. On November 15, 2016, the $400 Million Credit Facility refinanced the following six credit facilities: the $253 Million Term Loan Facility, the $148 Million Credit Facility, the $100 Million Term Loan Facility, the 2015 Revolving Credit Facility, the $44 Million Term Loan Facility and the $22 Million Term Loan Facility.

Capital Expenditures

We make capital expenditures from time to time in connection with vessel acquisitions. As of November 1, 2017, our fleet consists of 13 Capesize, six Panamax, four Ultramax, 21 Supramax, one Handymax and 15 Handysize vessels with an aggregate capacity of approximately 4,688,000 dwt.

In addition to acquisitions that we may undertake in future periods, we will incur additional capital expenditures due to special surveys and drydockings for our fleet. Four of our vessels completed drydocking during the third quarter of 2017. We currently expect one of our Capesize vessels to be drydocked during the fourth quarter of 2017.

Genco Shipping & Trading Limited’s Fleet

Genco Shipping & Trading Limited transports iron ore, coal, grain, steel products and other drybulk cargoes along worldwide shipping routes. As of November 1, 2017, Genco Shipping & Trading Limited’s fleet consists of 13 Capesize, six Panamax, four Ultramax, 21 Supramax, one Handymax and 15 Handysize vessels with an aggregate capacity of approximately 4,688,000 dwt.

Our current fleet contains 15 groups of sister ships, which are vessels of virtually identical sizes and specifications. We believe that maintaining a fleet that includes sister ships reduces costs by creating economies of scale in the maintenance, supply and crewing of our vessels. As of November 1, 2017, the average age of our current fleet was 9.6 years.

Source: Hellenic Shipping News.