Genco Shipping & Trading Limited (GNK) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited Second Quarter 2026 Earnings Conference Call and Presentation. Before we begin, please note that there will be a slide presentation accompanying today's conference call. That presentation can be obtained from Genco's website at www.gencoshipping.com. To inform everyone, today's conference is being recorded and is now being webcast at the company's website, www.gencoshipping.com. [Operator Instructions] A webcast replay will also be available via the link provided in today's press release as well as on the company website. At this time, I will now turn the conference over to the company. Please go ahead.

Good morning. Before we begin our presentation, I note that in this conference call, we'll be making certain forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements use words such as anticipate, budget, estimate, expect, project, intend, plan, believe and other words and terms of similar meaning in connection with the discussion of potential future events, circumstances or future operating or financial performance. These forward-looking statements are based on management's current expectations and observations. For a discussion of factors that could cause results to differ, please see the company's press release that was issued yesterday, the materials relating to this call posted on the company's website and the company's filings with the Securities and Exchange Commission, including, without limitation, the company's annual report on Form 10-K for the year ended December 31, 2025, and the company's reports on Form 10-Q and Form 8-K subsequently filed with the SEC. At this time, I would like to introduce John Wobensmith, Chairman and CEO of Genco Shipping Trading Limited.

Good morning, everyone. Welcome to Genco's Second Quarter 2026 Conference Call. I will begin today's call by reviewing the progress we've made executing our comprehensive value strategy, and then we will review our Q2 2026 highlights and dividend outlook for the remainder of the year. We will then provide additional details on our financial results as well as an update on the industry's current fundamentals before opening the call up for questions. For additional information, please also refer to our earnings presentation posted on the website. Starting on Slide 5. During the second quarter, we continued to make meaningful progress executing our comprehensive value strategy, which is generating compelling returns for shareholders. Since 2021, we have been executing our well-defined capital allocation strategy and have successfully transferred Genco into a low leverage, high dividend company, supported by a fleet of premium earning assets, industry low breakeven levels and a leading commercial operating platform. Today, our shareholders are continuing to see the benefits of our strategy. We have fortified our balance sheet to effectively operate and grow in various rate environments and provide shareholders with consistent and sizable dividends. We have invested $557 million in high-specification modern vessels with a focus on sectors with compelling supply and demand fundamentals and distributed $308 million in dividends to shareholders since 2021. We have also paid down $119 million in debt, significantly reducing our cash flow breakeven rate and further enhancing our earnings power and dividend capacity. Moving to Slide 6. Following a strong first quarter, we are pleased to have carried this positive momentum into Q2 2026. During the second quarter, we generated strong cash flow. This was driven by a time charter equivalent rate of over $24,200 per day, our highest quarterly TCE rate since 2022, resulting in adjusted EBITDA of nearly $57 million. These strong results exceeded expectations for the quarter as the dry bulk market continued to strengthen, and we further capitalized on our growing fleet of premium earning assets across the main sectors in which we operate. We declared a Q2 dividend of $0.80 per share, more than double our first quarter dividend and 433% higher on a year-over-year basis. Notably, our Q2 dividend is the highest we've declared since the inception of our comprehensive value strategy in 2021. This also marks our 28th consecutive quarterly dividend paid to shareholders, the longest uninterrupted period in our dry bulk peer group. Our strong financial performance reflects the deliberate steps we have taken to increase our earnings power and dividend capacity for the benefit of our shareholders. The second quarter marked the first full quarter in which all of our 2025 vessel acquisitions operated for an entire quarter. These well-timed acquisitions, which grew our asset base by approximately 20% directly and significantly contributed to our strong earnings and dividend during the quarter. Later this month, we are set to further strengthen our fleet as we expect to take delivery of a 2019 built Capesize vessel, the Genco Volunteer. This will bring our total investment in Capesize and Newcastlemax vessels to $408 million since 2023, a period in which these vessel types have vastly outperformed all others in the dry bulk sector. Importantly, we have achieved an IRR of over 30% to date on these acquisitions. As we have done with the other vessels we added to our fleet in 2026, we anticipate trading the Genco Volunteer in the spot market and expect the vessel to earn a significant premium to the Baltic Capesize Index given its high specifications. As depicted on Slide 7 and 8, we achieved multiyear highs for the Q2 dividend, TCE and EBITDA and expect to exceed those metrics going into Q3. Including our Q2 dividend of $0.80 per share, we will have paid $8.715 per share in quarterly dividends over the past seven years. With the growth of our premium earning assets, our spot-focused commercial strategy and our considerable operating leverage in a strengthening dry bulk market, we project a Q3 dividend to achieve another record level. Based on our Q3 fixtures to date of $28,600 per day for 66% of our available days and assuming the current FFA curve for the balance of the quarter, we project a third quarter dividend of over $1 per share. We have strong prospects in Q4 as well, which we project another dividend north of $1 per share based on the FFA curve. This would bring a projected full year dividend of over $3.15 per share. The foundation of Genco's strong earnings power and dividend capacity and what we believe drives valuation in public markets is rooted in strong corporate governance and capital allocation decisions, and our strategy is outlined on the next several slides. Moving to Slide 9. Genco continues to maintain industry-leading corporate governance, which has underpinned our shareholder-focused outperformance. We are consistently ranked in the top quartile on corporate governance among public shipping companies, and we are the only U.S.-listed dry bulk shipping company with no related party transactions. Turning to Slide 10. Genco has one of the lowest cash flow breakeven levels in our peer group. This is directly related to our industry low net loan to value as well as having no mandatory debt amortization. In addition to significantly increasing our Q2 and Q3 TTE to date on a year-over-year basis, we continue to markedly exceed our low cash flow breakeven rate. Specifically, our Q3 TCE to date of nearly $29,000 per day is approximately $19,000 per day above our breakeven rate prior to maintenance CapEx of approximately $10,000 per day. On Slide 11, we highlight the strategic benefits of our balanced fleet composition. Following the expected Cape delivery in August, we will own a fleet of 20 Capesize and Newcastlemax vessels as well as 24 Ultramax and Supramax vessels. Importantly, we continue to balance the upside potential of the Capesize sector, along with the steadier earnings profile of minor bulk ships. On a vessel ownership basis, our splits are 45% Capes and 55% Ultramax/Supramax. However, when viewed on a net revenue basis over the last two years, we are over 50% weighted towards the larger Capesize vessels, putting us in a unique position in our peer group to benefit from the strengthening freight rate environment. On Slide 12, we highlight the current operating leverage provided by our pro forma fleet of 44 vessels. Every $1,000 fleet-wide TCE increase equates to $16 million of incremental annualized EBITDA or $0.36 per share. Every $5,000 increase in TCE for our 20 Newcastlemax and Capesize vessels equates to $36 million or $0.81 per share of incremental earnings and dividend capacity. Turning to Slide 13. We also continue to balance our high operating leverage with our low financial leverage, providing us with flexibility to operate across various freight market conditions. In stronger markets, we generate meaningful cash flow with our industry low breakeven rate and scalable fleet. In market downturns, Genco's low financial leverage and undrawn revolver capacity enable us to pursue countercyclical growth opportunities. Importantly, Genco is well positioned today to drive value for our shareholders and play offense in any type of dry bulk market. I will now turn the call over to Peter Allen, our Chief Financial Officer.

Thank you, John. On Slides 15 through 17, we highlight our strong second quarter financial results, which are driven by our sizable operating leverage, growing fleet and industry low breakeven levels. For the second quarter, Genco recorded net income of $16.6 million or $0.38 and $0.37 basic and diluted earnings per share. Adjusted net income is $29.2 million or $0.67 and $0.65 basic and diluted earnings per share, excluding a gain on sale of vessel of $1.9 million, other operating expenses of $13.1 million, impairment on vessel assets of $1.2 million and an unrealized fuel loss of $0.2 million. Other operating expenses primarily relate to shareholder and proxy expenses incurred during the quarter, including financial advisory costs associated with inadequacy opinions received for outstanding tender offers at the time. Such opinions are connected to tender offers and served as important information for both the company to determine that the offers were inadequate and for shareholders in making their own determinations regarding the offers. Adjusted EBITDA for Q2 totaled $56.7 million, an increase of approximately 300% year-over-year. This was led by a time charter equivalent rate of $24,273 per day, which rose by 78% as compared to Q2 2025, while the cost structure was similar on a year-over-year basis, highlighting the operating leverage inherent in our fleet. Our first half of 2026 adjusted EBITDA totaled $92.9 million, which already exceeds the full year 2025 level and is on pace to be our highest earnings year since the 2021 2022 period. We continue to generate meaningful cash flow and maintain significant financial flexibility. Our cash and debt positions as of June 30, 2026, were $74 million and $330 million, respectively. Our undrawn revolver availability at quarter end was $350 million. For the Genco Volunteer, the 2019 built Capesize vessel we expect to be delivered in August. We paid an installment of $6.5 million in Q2, and we have $58.5 million of CapEx remaining for this acquisition to be paid in Q3. We drew down $50 million in July to partially fund this acquisition with the remaining CapEx to be funded with cash from the balance sheet. With our full revolving credit facility structure, we plan to continue actively managing our cash and debt positions to reduce interest expense while maintaining access to capital to act on growth opportunities as we have demonstrated in recent years. We view our strong balance sheet as a core component of our comprehensive value strategy and a strategic asset that enables us to act quickly and decisively as we have demonstrated in recent years with our accretive growth initiatives. As outlined on Slide 18, we believe Genco is in an advantageous position. A fleet of 43 high-quality modern dry bulk vessels are significant operating leverage combined with low financial leverage, a $10,000 cash flow breakeven rate and $350 million of undrawn revolver availability collectively provide an attractive risk-reward balance for shareholders. Furthermore, we continue to provide shareholders with compelling quarterly dividends. Our established and transparent dividend policy targets a distribution based on 100% of operating cash flow less a voluntary reserve as described on Slide 19. In the second quarter, our Board declared a dividend of $0.80 per share based on operating cash flow of $55 million and a voluntary quarterly reserve of $19.5 million. Operating cash flow in Q2 increased by 55% relative to the prior quarter, which flowed through the dividend, which more than doubled. The second quarter dividend represents an annualized dividend yield of approximately 12% based on the current stock price. Consistent with previous quarters, other operating expenses are not included in the dividend calculation, which is in line with the methodology used in the previous 4 quarters in which these extraordinary expenses have been incurred. Q2 also marked the first full quarter in which our 2025 acquisitions were integrated into our fleet. These acquisitions alone had a quarterly dividend impact of approximately $0.15 per share in Q2 2026 or nearly 20% of the $0.80 dividend, underscoring how accretive these acquisitions have been. These acquisitions were fully funded with our existing liquidity, highlighting the benefit of our strong balance sheet. As a result, each Genco share immediately received this uplift in earnings, making these transactions highly accretive to cash flows, dividends and overall shareholder value. Looking ahead to Q3 2026, we currently have 66% of owned available days fixed at approximately $28,600 per day as compared to our anticipated cash flow breakeven rate, excluding drydocking-related CapEx of approximately $10,000 per vessel per day. Importantly, Q3 2026 TCE is on pace to increase by nearly 80% year-over-year and our highest level since Q2 2022. As a result, we expect a significantly higher dividend in Q3 2026 as compared to both Q2 2026 and Q3 2025. I will now turn the call over to Michael Orr, our drybulk market analyst, to discuss the industry's current landscape.

Thank you, Peter. Beginning on Slide 21. During the second quarter of 2026, freight rates continue to rise following a strong Q1. Specifically, the Baltic Capesize Index averaged over $36,000 per day in Q2, the highest quarterly level since 2021, while the Baltic Supramax Index averaged over $17,000 per day, the highest mark since 2022. In Q3 to date, rates continue to be firm with the forward freight curve playing to levels in excess of $35,000 and $18,000 per day across the Capesize and Supramax sectors, respectively. We believe the strong dry bulk earnings environment is due to a continued solid iron ore trade, significant growth in bauxite exports and a reemergence of the coal trade. These demand side catalysts have extended trading distances, accentuating the existing capacity constraints of the dry bulk fleet. Turning to Slide 22. China continues to import large volumes of iron ore led by abundant seaborne supplies from Brazil and Australia. Specifically, China's iron ore imports in the first half of 2026 increased by 6% on a year-over-year basis, while Brazilian exports were up by 2% over this period. Importantly, in June, we saw record Chinese iron ore imports of 113 million tons as well as all-time high Brazilian shipments of 42 million tons, which were increases of 8% and 18% year-over-year, respectively. Historically, Brazilian exports are approximately 20% higher in the second half as compared to the first half of the year. The Atlantic Basin for Capesize vessels has also been met with rapidly growing exports of bauxite from West Africa as highlighted on Slides 23 and 24. This trade has been supportive to Capesize vessels in recent months given the ton-mile intensity of the trade route. Furthermore, Simandou iron ore exports have steadily grown since the first shipments in Q4, exceeding 2 million tons in May, with full year volumes expected to be weighted towards the second half of the year following the rainy season. Going forward, given the scale of the expected growth projects from Simandou on the iron ore side as well as continued iron ore growth from Vale in Brazil and bauxite out of West Africa, these incremental volumes could absorb potentially over 200 Capesize vessels. Supply constraints in newbuilding activity, combined with added long-haul trading distances are two key catalysts for the sector. Furthermore, as detailed on Slide 25, with the escalation of geopolitical tensions in recent months, the key theme of energy security has once again risen to the forefront. For dry bulk specifically, that translates to augmented demand for coal as a potential replacement for other sources of energy that have either experienced disruptions or rising prices. Notably, we have seen an increase in coal cargoes originating from the U.S. and Colombia with Asian destinations. These long-haul trade routes once again further stretched the dry bulk fleet. Additionally, a high probability of an El Niño weather event could lead to low water levels in the Panama Canal, resulting in reduced transits, further increasing fleet inefficiencies. On Slide 27, we highlight the global grain trade. China has increased its purchase of U.S. soybeans with year-to-date imports from the U.S. already exceeding all of last year. In terms of newbuilding deliveries in the year-to-date, as outlined on Slide 28, net fleet growth in the first half of 2026 was 3.9%, split between 1% net fleet growth for Capesizes and 4% to 6% net fleet growth from Panamaxes down to Handysize. Specifically, we have only seen 21 Capes delivered to the global fleet so far this year, which represents a reduction of 75% as compared to the 15-year average, highlighting the impact of the low order book coming to fruition in 2026, which is a key pillar of the Capesize and dry bulk pieces. Additionally, as scrapping has remained low in recent years, the age of the global fleet has risen to 13 years old, the highest average age of the global dry bulk fleet since 2010. This has increased the pool of potential scrapping candidates as 12% of the on-the-water fleet is 20 years or older, which is nearly identical to the global dry bulk order book as a percentage of the fleet of 14%. This implies net replacement of tonnage over time as opposed to any material net fleet growth. While we expect volatility in the freight rate market to persist, the foundation of a low supply growth picture provides a solid basis for our positive view of the dry bulk market going forward. I will now turn the call back over to John to conclude the call.

Thank you, Michael. Turning to Slide 30. The second quarter marked another period of disciplined execution of our comprehensive value strategy, resulting in strong financial results as we generated EBITDA for the first half of the year that exceeded total EBITDA for all of 2025 and increased our Q2 dividend by over 400% to a value strategy high level. We are continuing to realize the significant benefits of our sizable operating leverage, strong balance sheet and industry low breakeven levels that have enabled Genco to increase its earnings power and dividend capacity. We are operating in a strong rate environment and asset values have continued to increase, which together with strong cash flow generation, has contributed to Genco's increasing net asset value. As we look ahead, Genco is well positioned to continue driving returns through sizable dividends and creating value for shareholders. Before we turn the call over to Q&A, I'd like to provide a brief update on the latest proposal we received from Diana Shipping. The Board is continuing to review Diana's nonbinding indicative proposal to acquire all remaining outstanding shares of Genco's common stock in exchange for $24.80 per share in cash, plus 1 share of Diana common stock per Genco share. As part of that review, our advisers have engaged with Diana's advisers to discuss their proposal, including its price structure and terms. Genco's Board has authorized its financial advisers to continue discussions with Diana's financial advisers with the goal of determining whether a transaction that fully and fairly compensates Genco shareholders is achievable. The Board has directed its advisers to engage on several key topics, including Genco's current NAV, an appropriate control premium to NAV that reflects the value of Genco's sizable and industry-leading platform in a rising market, how to protect Genco shareholders from the significant potential dilution associated with Diana's proposed issuance of new stock as part of the contemplated transaction and the limited rights granted to Diana shareholders under its existing governing documents, along with Diana's pre-agreed sale of Genco vessels to Star Bulk at a large discount to current market value. Also, the treatment of Genco's Q2 dividend of $0.80 per share and future dividends as the cash component of Diana's offer is to be reduced by dividends declared. Said differently, Diana's offer is decreasing while Genco's NAV in the dry bulk market is rising. And finally, how to fairly reflect Genco's strong cash flow generation in which dividends to shareholders are projected to be over $1 per share in both Q3 and Q4 of 2026. Our Board is committed to maximizing shareholder value and we will continue to act in the best interest of all Genco shareholders. We will provide a further update on our review of the proposal in due course. Please note that the purpose of today's call is to discuss our second quarter results and opportunities ahead in a strengthening dry bulk market. We ask that you please keep your questions focused on our results, performance and industry trends. Thank you in advance. And this concludes our presentation. We'd be happy to take your questions.

[Operator Instructions] Your first question comes from the line of Omar Nokta with Clarksons.

Well, it looks like business is looking good. You declared your biggest dividend so far under your comprehensive value strategy. Next one is looking bigger and perhaps the one after that, too. I guess I appreciate your comments that you just made on Diana. I just wanted to ask in terms of managing the business, how has it been here recently? Has that process that you've been dealing with or at least your advisers and the Board, has that affected business at Genco or strategy to any extent?

Look, I think it's obviously one more thing that has been added to our list, but we have a very well thought out comprehensive value strategy, as you just said, with low leverage, high dividends and growth opportunities. So that is in place. And again, it was a strategy that the Board put in place several years ago at this point. It's been working well. So we're continuing to follow that strategy. We -- strong governance and capital allocation, the two main components that we believe creates real value for shipping companies in the public market. So we're very focused on those two aspects as well. We did grow our fleet by 20% on an asset value basis in 2025. So acquisitions are still very much on the table. We still have the Genco Volunteer that we're taking delivery of, I believe, next week. And the investments that we've -- so far since 2023 on the Capesize side, over 30% IRR. So company is running on all cylinders, irrespective of the proxy issues that are now behind us and concluded for the time being. So we're going to continue to look at growth opportunities. We're going to continue to run under the value strategy and return cash to shareholders in the form of dividends.

Yes. And maybe just as a follow-up on that point, just kind of talking about the fleet. As you mentioned, you've got the Volunteer coming in perhaps next week, and you've got those two Newcastlemaxes from earlier this year that were well timed. It looks like you'll be at basically a fleet split of 20 Capes, 24 Ultra Supras. How do you see that balance in general? Yes. And does the secondhand market, as you mentioned, they're going up in terms of values and your NAV is rising with that. Is it still compelling to look at the secondhand market? And what are your thoughts just on, say, newbuildings in general?

Okay. So in the secondhand market, yes, values continue to firm. Freight rates also have moved back up and started to recover from the early part of the year, which has all been positive. So -- and we are still in a mode of fleet renewal. So even if we were buying assets at higher numbers, we're also selling our older assets at higher numbers. So we're -- again, we want to continue fleet renewal. We're going to do that. We'll have to see on just on large-scale growth, how we accomplish that. But it is nice that our shares are trading fairly well. So at some point, if there is an attractive transaction, there's a possibility of using shares as currency along with cash. On the newbuilding side, we have -- I wouldn't say we're full scale against them, but it's not something that we typically focus on. And the reason is because you're really talking about 2029 delivery dates at this point in the dry bulk sector. And so you have money that is what I'll call dead money. It's money out the door, but it's not earning anything, which we don't believe works well for public companies. And probably more importantly, when we're buying assets, we like to be able to derisk them on the front end. So we like to get the cash flows as soon as possible. So I think you'll see us focus mostly on the secondhand market rather than looking at newbuilds at this point.

Your next question comes from the line of Liam Burke with B. Riley Securities.