Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Limited Second Quarter 2024 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. We will conduct a question-and-answer session after the opening remarks. Instructions will follow at that time. A replay of the conference will be accessible anytime during the next two weeks by dialing 800-770-2030 and entering the passcode 6365548. 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 will 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 discussion of factors that could cause results to differ, please see the Company's press release that was issued yesterday. 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, the year ended December 31, 2023, 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, Chief Executive Officer of Genco Shipping and Trading Limited.

Good morning, everyone. Welcome to Genco's second quarter 2024 conference call. I will begin today's call by reviewing our Q2 2024 and year-to-date highlights. Additionally, we will provide an update on our value strategy, discuss our financial results for the quarter as well as the industry's current fundamentals before opening the call up for questions. For additional information, please also refer to our earnings presentation posted on our website. Starting on slide five, Q2 2024 marked another strong quarter for Genco. We drew on our sizable dry bulk fleet and firm market conditions to generate nearly $40 million of EBITDA, led by our time charter equivalent rate of just under $20,000 per day for the fleet. Q2 represented another quarter of execution of our differentiated value strategy, focused on dividends, deleveraging, and growth, in terms of shareholder returns, we declared a Q2 dividend of $0.34 per share as our strong earnings flowed into our dividend consistent with our transparent policy. During the quarter, we also further improved our risk reward balance as we voluntarily paid down debt and improved our net leverage position to 2% on a pro forma basis. As we approach our goal of net debt zero. On page six, we highlight the compelling dividends we have provided to shareholders. The second quarter dividend marks our 20th consecutive quarterly dividend payment. It also represents five uninterrupted years of providing shareholders with dividends, which is the longest period of consecutive dividends in our peer group. Over this time, we have declared $5.91 per share in dividends, or approximately 33% of our share price as of August 6, 2024. Complementing shareholder returns during Q2, we continue to prioritize fleet renewal following the timely acquisition of two modern, high specification Capesize vessels in Q4 2023. We divested three 2009 to 2010…

Thank you, John. On slides 11 through 13, we highlight our second quarter financial results. Genco recorded net income of $23.5 million, or 54 basic and diluted earnings per share. Adjusted net income amounted to $19.9 million, or basic and diluted earnings per share of $0.46. Adjusted EBITDA for Q2 told $40 million, approximately 33% higher than the total from Q2 2023. For the first half of 2024, adjusted EBITDA amounted to $81.6 million, an increase of 64% year-over-year, putting the company on pace to well exceed last year's full year adjusted EBITDA of $101.5 million. During Q2, our net revenues increased by 22% on a year-over-year basis. The strong level and the strong boost in revenue was led by our Capesize vessels, which earned a TCE of $29,145 per day in Q2 2024, nearly $10,000 per day higher than the same period of last year, highlighting the operating leverage and upside potential of that sector. On slide 14, we show the trajectory of our debt outstanding and our continued voluntary debt repayments. Since the end of 2020, we have paid down nearly 80% of our debt, or $349 million, which has resulted in a pro forma net loan to value ratio of only 2%. The company is currently on track to achieve our goal of net debt zero in the short term, a metric that we have been targeting since the announcement of our value strategy in April 2021. Specifically, this year, we have voluntarily paid down $100 million of debt under our revolving credit facility. We estimate these voluntary debt repayments in the year-to-date. We'll reduce interest expense by $5 million on an annualized basis, or approximately $350 per vessel per day on our cash flow breakeven rate. This highlights the importance and significant flexibility that our current…

Thank you, Peter. As depicted on slide 17, the dry bulk market remained at elevated levels during the second quarter. The BCI averaged over $22,000 per day as Australian miners pushed to achieve their fiscal year end guidance target by the end of June. While rates have pulled back recently, July was still represented the second strongest month of the year at $25,500 per day. Q3 rates this year on average are approximately 80% and 50% higher than their Q3 2023 for Capesizes and Supermaxes, respectively. Capesize and Supermax rates are currently $20,000 and $14,000 per day, respectively. Regarding the steel complex, several of the indicators that we track are highlighted on slide 18. China's iron ore imports rose by 7% through July year-over-year, led by strong export volumes in the seaborne market, most notably from Brazil. A portion of China's higher imports have replenished previously drawn down inventories. Iron ore port inventories currently stand at 151 million tons, an increase of 23% year-over-year. However, these levels remain below the 2022 highs in absolute terms and are only marginally higher than historical average levels on a days on hand basis. Augmented seaborne iron ore supply together with higher inventories have been factors behind the decline in the iron ore price to approximately $100 per ton currently. Furthermore, China's steel production is 1% lower year-over-year through the first half of 2024. As China's property sector has impacted domestic steel demand. China's steel exports have grown by 22% in the year-to-date and are on pace for their strongest year since 2016. On slides 19 through 20, we highlight the growing long haul, ten-mile story that we believe is quite encouraging for the Capesize segment. The massive Simandou iron ore project in Guinea is on track to begin production in late 2025, which…

Thank you, ladies and gentlemen we'll now conduct the question-and-answer session. [Operator Instructions] And your first question comes from the line of Omar Nokta of Jeffries. Please go ahead.

Thank you. Hey guys, good morning. Thanks for the, for the update. Just a couple questions on my end and maybe, you know, John, Peter, you mentioned LTV or Net LTV is now down to 2% and you're set to be at 0% here fairly soon. And this was your target from the get go starting in '21 when you went down this capital allocation path. I wanted to ask, once you get to that zero level, does that change anything for you guys at Genco, whether it's strategically or from a capital allocation perspective?

Yeah, so that's a great question and good morning, Omar. I think it gives us even more flexibility to take a look at what we want to do from a dividend standpoint, what we want to do for continued growth. So, I don't have a specific answer, but there's no doubt that that is a milestone and I think we'll take a look at quite a few things once we get to that net debt zero, which, as you said, we're approaching pretty quickly now.

Okay. Yeah. So, we'll look forward to seeing how things progress from there. I wanted to also just ask about, you sold the three Capes last year. You replaced them here recently, you sold an older Cape, which you mentioned is non-core, same for the Supra. What are your thoughts on replacing them in this market? Is there a plan on your part to replace those two ships, and would you do so via the S&P market or would you do a charter in approach?

No, I think, well, first of all, we would do it in terms of the S&P market. I anticipate we will replace those two vessels in a relatively short period of time. Values are firm in both the older vessels, which is why we elected to sell the Hadrian, particularly right now. And they continue to be firm in the newer and the eco vessels. But we still think the cash-on-cash returns are justified. And so we like the idea of being able to, particularly the older ships, take advantage of that high market, and then we're redeploying capital for the long term with the newer ships. And we think that makes a lot of sense. So, we'll continue to do that. Again, I'll just say the intention is to put those funds back to use in a relatively short period of time.

Okay. Yeah. And then that makes sense. And I guess just in terms of putting that capital to good use here in a short amount of time. You mentioned seasonality and some repositioning of vessels in the broader market has impacted freight rates, although they're still fairly decent and relatively healthy. Has there been any kind of impact on the sale and purchase market? Has there been a, I mean, it seems like that market's been fairly busy for the past almost, I guess, year plus. Has there been any sort of slowdown and S&P activities are still fairly active and being able to get a deal done is just as flu as it has been.

A few things. One, I would say it's still active. Having said that, we're in the month of August, and S&P deals do tend to slow down a little bit, just from a pure seasonal summer standpoint, but there's still transactions being done and they're being done at last on prices as well. So, we haven't really seen any softening on the price front.

Okay. Yeah. So firm as you say?

Yeah.

Great. All right, John, thank you. I'll pass it over.

Great. Thanks, Omar.

Your next question comes from the line of Liam Burke from B. Riley. Please go ahead.

Yeah. Thank you. Good morning, John. Peter, Michael. John, you've got a time charter on one of your capes at 35,000 a day, which is pretty healthy rate. Has there been any interest in the market of time charting out any of your other capes that are trading in the spot market?

I would say where rates are, and particularly that we're in the summer, I would say liquidity is a little lower on the one-year TCE market. You could certainly do one today. But we think rates are actually going to improve as we get into late third and early fourth quarter. So, I think assessing it is better left for another month or so. Having said that, we've done some index deals, and as you're aware, those index transactions allow us to fix at any time within the index period. And so, we have a couple options available, a couple levers to pull if, when things firm up in the latter part of the year, if it makes sense, we'll take some exposure off the table. But I think right now, during the summer, what I would call more of a traditional summer lull, I think waiting is the best strategy.

Okay. You talked about redeploying the proceeds of your vessel sales to higher return opportunities. That should come to pass pretty soon. You have a few older vessels. Specifically, you've got two non-capes that are similar to the Warrior. Is there any interest to move them out and to redeploy it to higher return opportunities? Or are you just going to maintain it right here?

No. Look, on the Supers, as you pointed out, there are 205s that are there, that are 55s. Those are definitely in the box to move out and redeploy. And then there's some of the, you know, maybe the o nine’s and ten’s Supras we'll also look at. So, I think you'll continue to see more, more of the same until we can, you know, until we can find a larger transaction, which, as you know, we're always trying to uncover.

Great. Thank you, John.

Thanks, Liam.

Your next question comes from the line of Ben Nolan of Stifel. Please go ahead.

All right, thanks. Hey, good morning, guys. So I have a couple, first of all, and this maybe goes back to Omar's question a little bit, can you maybe walk me through the calculus as to sort of how you come up with that $19.5 million of effective reserve when you're allocating capital towards the dividend? Just maybe. What's the math behind that? Or how do you think about that going forward now that you really don't have any debt?

Hey, Ben. Yeah, I'll take that one. Thanks for the question. So, the $19.5 million voluntary reserve is, just to be clear, it's 100% in the board's discretion in terms of the use of that. And we have moved it up or down in previous quarters. But to answer your question, to get to the calculus of it, when we first announced the value strategy, we had a debt repayment line item of $8.75 million, and then we had a voluntary reserve of $10.75 million. And since we now have no mandatory debt amortization, and we actively manage the debt with the RCF that we put in place last Q4, we decided to simplify the calc and consolidate those two line items into one. So that's how you get to the $19.5 million. But essentially, again, like I mentioned earlier, it is fully discretionary in terms of board and management's view of it. And, you know, in the past, we have flexed that reserve as well. So hopefully, that answer your question?

Yeah, Ben, keep in mind, that was, you know, we gave that. We gave that guidance at the beginning of this year, and as Pete said, we've lowered it in 2023 to pay dividends in the second and third quarter when the formula may have produced a zero, which we still have that flexibility going forward, depending on freight rates. But that reserve gets assessed at least once a year. So, we'll be looking at it again towards the end of this year to give forward guidance for the following year. And as I said earlier on the call, getting down to net debt zero is a milestone. So, I think we'll be looking at quite a few things as we get in towards the end of the year.

Okay, I appreciate that color there. And then my next question really is just more for modeling. But in general, as you think about the OpEx, I know it looks like the Capesize OpEx came up a little bit this year. Are you seeing much in the way of inflation at all in terms of that OpEx? Or maybe was it just. I know that sometimes things can be a little lumpy from quarter-to-quarter.

Yeah, that's exactly it. So, Q2, sure, it was higher. We were guiding to a higher DVOE figure for the quarter. But, yeah, to your point, when you do look at OpEx over a three month period, it does get very lumpy. We like to look at, at least 12 months. I mean, if you stretch it out to the last six quarters, last 18 months, our DVOE average is about 6200, which is in line with our Q3 guidance that we provided. So, it does get a little bit lumpy. And Q2, a lot of it was timing related, but when we look ahead to Q3, we're guiding for a lower number of 6150 per vessel per day compared to the 6850 in Q2. So, on a year-over-year basis, maybe slightly higher with typical inflation. Crew wages is obviously a large part of, of the overall DVOE mix, but, yeah, nothing out of the ordinary. And more timing in Q2.

Yeah. And, Ben, as we typically do, as we get above the 90% fixture rate on the TCE, we will, you know, we'll continue to put out guidance for that, and we'll also, we'll put a guidance out for Q3 OpEx as well at that time.

Great. I appreciate it. Thank you, guys.

Your next question comes from the line of Bendik Nyttingnes of Clarkson Securities. Please go ahead.

Thank you. Morning, guys. Just back to capital allocation and your balance sheet. You have a lot of liquidity at hand with your RCS structure, and you're also at, I think it's now 41 vessels. Do you have any sort of sweet spot in terms of how many vessels you want to operate or sort of a brief from an operational perspective?

I wouldn't say there's a sweet spot, but, you know, we are net down in terms of what we have sold, so we definitely are going to be adding, you know, as I said, in the short term, you know, two to three ships to replace what we've recently sold. So that that will definitely occur. We're going to continue with the fleet renewal approach for some of the older Supermaxes as well and replace those. And if, you know, again, we continue to look for the right transaction to grow on a bigger scale, but not the easiest thing to define, and we certainly don't want to. We've worked very hard to get to net debt zero, and so we certainly are not going to lever up, so to speak, in this market with firm asset prices. But again, the right transaction, if you can figure out a way to, to do NAV to NAV type transactions with shares and those types of things make more sense. So longer answer to your question.

Thank you.

[Operator Instructions] Your next question comes from the line of Poe Fratt with Alliance Global Partners. Please go ahead.

Yeah. Good morning. John, you know, where does, where do stock buybacks fit in your capital allocation program or strategy?

Sorry, say that again, Poe. It just broke up a little bit.

Yeah. Sorry. Where do stock buybacks fit, within the capital allocation strategy?

Look, buybacks, as you're aware, we've talked about these rather recently, quite extensively. It's in our tool belt. There's no doubt there's a time to do those. We discuss it with the board continuously. And right now, I would say we're not in that mode. But that doesn't mean that there becomes a wider disconnect between where vessel values are and NAVs and where our share price is trading. Clearly, we're going to look at that and make a decision. There's a discount right now. If you actually look at where vessel values are today, they'd have to come down I think somewhere around 25% to actually justify today's share price, which doesn't make a lot of sense to us. But there's a lot of things in the equity markets right now that are with dislocation and don't make a lot of sense, so. But yes, it is. It's definitely in our tool belt Poe, and there is a time to put that in place.

Great. And Peter, if you could just clarify, it sounds like the reserve is going to be reviewed on an annual basis, not a quarter-to-quarter basis.

I don't think that's the case. Poe. I mean, I think we're always looking at reserve every single quarter, but in terms of giving, you know, real guidance to the market. And we said this, you know, since the beginning of the, of the strategy, we wanted to give at least a 12 month look. But that doesn't mean we don't, you know, again, look at it on a quarter-by-quarter basis. But we're very quickly coming into the end of the year where, you know, we're going to, we'll take a deep dive on our capital allocation strategy. So, so it's not far away.

And then John, you know, you mentioned the share-to-share transaction. Have you seen any pickup and interest in a share-to-share transaction over the last quarter or so?

I don't know if, I don't know if there's a. I'm not so sure if it ebb and flows, so to speak. It's yeah, I mean, it, you know, when you're obviously when you, when you have wider discounts on, on NAV, it becomes more difficult. So maybe we have ebbed a little bit here, but we're always looking at transactions and hopefully we will be able to execute on some time in this market. I wish I had a better answer for you, but they're not easy transactions to do, as you're well aware.

Sounds good. Thanks for your time.

Thanks, Poe

As there are no further questions at this time. That concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.