Genco Shipping & Trading (GNK) - 2023 Q2 - Quarterly Report

Corporate Information This section provides essential company identification details, including its SEC filing type, stock exchange listing, and filer status - The filing is a Quarterly Report (Form 10-Q) for Genco Shipping & Trading Limited for the quarterly period ended June 30, 2023[2] - The registrant is a Large accelerated filer[4] - As of August 8, 2023, there were 42,528,689 shares of common stock outstanding[4] Title of each class | Title of each class | Trading Symbol(s) | Name of exchange on which registered | | :------------------ | :---------------- | :----------------------------------- | | Common stock, par value $0.01 per share | GNK | New York Stock Exchange (NYSE) | Website Information The company uses its investor relations website for material non-public information disclosure and Regulation FD compliance - The company uses its website, www.GencoShipping.com (Investor section), for disclosing material non-public information and complying with Regulation FD[8] - Investors should monitor the Investor portion of the website, in addition to press releases, SEC filings, public conference calls, and webcasts[8] PART I — FINANCIAL INFORMATION This part encompasses the company's unaudited condensed financial statements and management's discussion and analysis Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements, including balance sheets, statements of operations, comprehensive income, equity, and cash flows, along with detailed notes providing context and breakdowns of accounting policies, financial instruments, debt, and equity-related activities Condensed Consolidated Balance Sheets%20Condensed%20Consolidated%20Balance%20Sheets%20as%20of%20June%2030,%202023%20and%20December%2031,%202022) This section presents the company's financial position at specific dates, detailing assets, liabilities, and equity | Metric | June 30, 2023 (USD Thousands) | December 31, 2022 (USD Thousands) | | :------------------------------------------ | :---------------------------- | :------------------------------ | | Total assets | $1,135,393 | $1,173,866 | | Total liabilities | $180,448 | $205,557 | | Total equity | $954,945 | $968,309 | | Cash and cash equivalents | $47,934 | $58,142 | | Long-term debt, net | $148,261 | $164,921 | Condensed Consolidated Statements of Operations%20Condensed%20Consolidated%20Statements%20of%20Operations%20for%20the%20Three%20and%20Six%20Months%20ended%20June%2030,%202023%20and%202022) This section presents the company's financial performance, including revenues, operating income, and net income, over specific periods Three Months Ended June 30 | Metric | 2023 (USD Thousands) | 2022 (USD Thousands) | Change (USD Thousands) | % Change | | :-------------------------------- | :------------------- | :------------------- | :--------------------- | :------- | | Voyage revenues | $90,556 | $137,764 | $(47,208) | (34.3)% | | Operating income | $13,027 | $49,195 | $(36,168) | (73.5)% | | Net income attributable to Genco | $11,562 | $47,382 | $(35,820) | (75.6)% | | Earnings per share-basic | $0.27 | $1.12 | $(0.85) | (75.9)% | Six Months Ended June 30 | Metric | 2023 (USD Thousands) | 2022 (USD Thousands) | Change (USD Thousands) | % Change | | :-------------------------------- | :------------------- | :------------------- | :--------------------- | :------- | | Voyage revenues | $184,947 | $273,991 | $(89,044) | (32.5)% | | Operating income | $17,469 | $91,288 | $(73,819) | (80.9)% | | Net income attributable to Genco | $14,196 | $89,071 | $(74,875) | (84.1)% | | Earnings per share-basic | $0.33 | $2.11 | $(1.78) | (84.4)% | Condensed Consolidated Statements of Comprehensive Income%20Condensed%20Consolidated%20Statements%20of%20Comprehensive%20Income%20for%20the%20Three%20and%20Six%20Months%20ended%20June%2030,%202023%20and%202022) This section details comprehensive income components, including net income and other comprehensive income or loss Comprehensive Income Attributable to Genco Shipping & Trading Limited | Period | 2023 (USD Thousands) | 2022 (USD Thousands) | | :------------------------------------------ | :------------------- | :------------------- | | Three Months Ended June 30 | $10,569 | $48,881 | | Six Months Ended June 30 | $11,575 | $93,863 | Other Comprehensive (Loss) Income | Period | 2023 (USD Thousands) | 2022 (USD Thousands) | | :------------------------------------------ | :------------------- | :------------------- | | Three Months Ended June 30 | $(993) | $1,499 | | Six Months Ended June 30 | $(2,621) | $4,792 | Condensed Consolidated Statements of Equity%20Condensed%20Consolidated%20Statements%20of%20Equity%20for%20the%20Three%20and%20Six%20Months%20ended%20June%2030,%202023%20and%202022) This section outlines changes in total equity over periods, reflecting net income, dividends, and other comprehensive items Total Equity Movement (USD Thousands) | Metric | January 1, 2023 | June 30, 2023 | | :------------------------------------------ | :-------------- | :------------ | | Total Equity | $968,309 | $954,945 | | Net income (six months) | - | $14,196 | | Other comprehensive loss (six months) | - | $(2,621) | | Cash dividends declared (six months) | - | $(27,922) | Condensed Consolidated Statements of Cash Flows%20Condensed%20Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Six%20Months%20ended%20June%2030,%202023%20and%202022) This section summarizes cash flows from operating, investing, and financing activities over specific periods Cash Flow Summary (Six Months Ended June 30, USD Thousands) | Cash Flow Activity | 2023 | 2022 | | :------------------------------------------ | :----- | :----- | | Net cash provided by operating activities | $38,948 | $99,159 | | Net cash used in investing activities | $(3,531) | $(49,980) | | Net cash used in financing activities | $(45,625) | $(119,083) | | Net decrease in cash, cash equivalents and restricted cash | $(10,208) | $(69,904) | | Cash, cash equivalents and restricted cash at end of period | $53,892 | $50,627 | Notes to Condensed Consolidated Financial Statements%20Notes%20to%20Condensed%20Consolidated%20Financial%20Statements) This section provides detailed explanations and additional information supporting the condensed financial statements 1 - General Information This note describes the company's business operations, fleet composition, and consolidation policies - The Company is engaged in the ocean transportation of drybulk cargoes worldwide through the ownership and operation of drybulk vessels, operating in one business segment[24] - As of June 30, 2023, the fleet consisted of 44 drybulk vessels (17 Capesize, 15 Ultramax, 12 Supramax) with an aggregate carrying capacity of approximately 4,635,000 dwt and an average age of approximately 11.3 years[25] - The Company consolidates GS Shipmanagement Pte. Ltd. (GSSM), a 50%-owned joint venture formed with Synergy Marine Pte. Ltd. to provide ship management services, as Genco is deemed the primary beneficiary[26][27] 2 - Summary of Significant Accounting Policies This note outlines key accounting principles, estimates, and policies applied in preparing financial statements - The financial statements are prepared in accordance with U.S. GAAP and SEC rules for interim financial statements, and should be read in conjunction with the 2022 Annual Report on Form 10-K[28] - Significant estimates include vessel valuations, amounts due from charterers, residual value of vessels, useful life of vessels, fair value of time charters acquired, and fair value of derivative instruments[30] - Bunker swap and forward fuel purchase agreements do not qualify for hedge accounting; unrealized or realized gains and losses are recorded in the Condensed Consolidated Statements of Operations[32] - Voyage expenses include net (loss) gain from bunker fuel differences of ($269) thousand for Q2 2023 (vs $2,421 thousand gain in Q2 2022) and ($641) thousand for H1 2023 (vs $4,425 thousand gain in H1 2022)[36][38] Cash, Cash Equivalents and Restricted Cash (USD Thousands) | Category | June 30, 2023 | December 31, 2022 | | :------------------------------------------ | :------------ | :---------------- | | Cash and cash equivalents | $47,934 | $58,142 | | Restricted cash - current | $5,643 | $5,643 | | Restricted cash - noncurrent | $315 | $315 | | Total | $53,892 | $64,100 | Realized and Unrealized Gains (Losses) on Fuel Hedges (USD Thousands) | Period | Realized (Loss) Gain | Unrealized (Loss) Gain | | :------------------------------------------ | :------------------- | :--------------------- | | Three Months Ended June 30, 2023 | $(27) | $(38) | | Three Months Ended June 30, 2022 | $667 | $321 | | Six Months Ended June 30, 2023 | $81 | $(80) | | Six Months Ended June 30, 2022 | $1,296 | $1,760 | 3 - Cash Flow Information This note provides additional details on non-cash investing, financing activities, and cash paid for interest - Non-cash investing activities for H1 2023 included $749 thousand for vessel/ballast water treatment systems and $301 thousand for other fixed assets, recorded in Accounts payable and accrued expenses[39] - Non-cash financing activities for H1 2023 included $853 thousand for cash dividends payable, recorded in Accounts payable and accrued expenses[39] - Cash paid for interest, net of capitalized amounts, was $6,641 thousand for H1 2023 (vs $3,739 thousand for H1 2022), offset by $3,443 thousand (2023) and $41 thousand (2022) received from interest rate cap agreements[41] - The Company granted various restricted stock units (RSUs) and performance-based restricted stock units (PRSUs) during Q2 2023, with aggregate fair values ranging from $25 thousand to $1,451 thousand[43][44][45] 4 - Vessel Acquisitions and Dispositions This note details the company's activities related to acquiring and disposing of vessels - The Company acquired two 2022-built Ultramax vessels (Genco Mary and Genco Laddey) for $29,170 thousand each, delivered on January 6, 2022[48] - Net proceeds of $5,643 thousand from the November 2021 sale of the Genco Provence remain restricted cash, with the period to finance replacement vessels extended to October 28, 2023[50] 5 - Earnings Per Share This note presents basic and diluted earnings per share calculations, including dilutive securities impact - Dilutive effects for the three months ended June 30, 2023, included 170,198 stock options, 54,712 performance-based restricted stock units, and 122,324 restricted stock units[52] Weighted Average Common Shares Outstanding | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :------------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Basic | 42,786,918 | 42,385,423 | 42,709,916 | 42,276,371 | | Diluted | 43,134,152 | 42,996,676 | 43,115,859 | 42,932,370 | 6 - Related Party Transactions This note discloses any transactions with related parties during the reporting periods - The Company did not have any related party transactions during the three and six months ended June 30, 2023 and 2022[53] 7 - Debt This note details long-term debt, credit facilities, and compliance with financial covenants - The $450 Million Credit Facility transitioned from LIBOR to SOFR for interest calculation effective June 30, 2023[56] - As of June 30, 2023, there was $206,990 thousand of availability under the $450 Million Credit Facility, and the Company was in compliance with all financial covenants[57][58] Long-term Debt, Net (USD Thousands) | Metric | June 30, 2023 | December 31, 2022 | | :------------------------------------------ | :------------ | :---------------- | | Principal amount | $153,500 | $171,000 | | Less: Unamortized deferred financing costs | $(5,239) | $(6,079) | | Long-term debt, net | $148,261 | $164,921 | Effective Interest Rate | Period | 2023 | 2022 | | :------------------------------------------ | :----- | :----- | | Three Months Ended June 30 | 8.39% | 3.96% | | Six Months Ended June 30 | 8.06% | 3.43% | 8 - Derivative Instruments This note describes the company's use of derivative instruments, like interest rate caps, to manage market risks - As of June 30, 2023, the Company had two interest rate cap agreements outstanding with a total notional amount of $150,000 thousand to manage interest rate risk[60][63] - One $50,000 thousand interest rate cap agreement expired on March 10, 2023[60] - A portion of one interest rate cap agreement was dedesignated as a hedge in Q2 2022, with subsequent gains/losses recorded in interest expense[61] - The valuation of interest rate caps transitioned to SOFR rates on June 30, 2023[65] - The Company recorded a $2,621 thousand unrealized loss for the six months ended June 30, 2023, in Accumulated Other Comprehensive Income (AOCI)[66] - Estimated income of $3,859 thousand recorded in AOCI as of June 30, 2023, is expected to be reclassified into earnings within the next twelve months[66] 9 - Fair Value of Financial Instruments This note provides fair value measurements of the company's financial assets and liabilities - Cash and cash equivalents and restricted cash are considered Level 1 items; floating rate debt, interest rate cap agreements, bunker swap agreements, forward fuel purchase agreements, and vessel impairment assessments are Level 2 items[73] - The Company did not have any Level 3 financial assets or liabilities as of June 30, 2023, and December 31, 2022[75] Fair Values and Carrying Values of Financial Instruments (June 30, 2023, USD Thousands) | Instrument | Carrying Value | Fair Value | | :------------------------------------------ | :------------- | :--------- | | Cash and cash equivalents | $47,934 | $47,934 | | Restricted cash | $5,958 | $5,958 | | Principal amount of floating rate debt | $153,500 | $153,500 | 10 - Accounts Payable and Accrued Expenses This note details the composition of the company's accounts payable and accrued expenses Accounts Payable and Accrued Expenses (USD Thousands) | Category | June 30, 2023 | December 31, 2022 | | :------------------------------------------ | :------------ | :---------------- | | Accounts payable | $8,867 | $16,162 | | Accrued general and administrative expenses | $3,554 | $6,171 | | Accrued vessel operating expenses | $6,621 | $7,142 | | Total | $19,042 | $29,475 | 11 - Voyage Revenues This note provides a breakdown of the company's voyage revenues by category and period Total Voyage Revenues (USD Thousands) | Period | 2023 | 2022 | | :------------------------------------------ | :----- | :----- | | Three Months Ended June 30 | $90,556 | $137,764 | | Six Months Ended June 30 | $184,947 | $273,991 | Voyage Revenue Breakdown (USD Thousands) | Category | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :------------------------------------------ | :------ | :------ | :------ | :------ | | Lease revenue | $44,926 | $62,752 | $81,893 | $118,557 | | Spot market voyage revenue | $45,630 | $75,012 | $103,054 | $155,434 | 12 - Leases This note describes lease arrangements, including sublease income and short-term charter-in agreements - Sublease income from the main office in New York was $306 thousand for both the three months ended June 30, 2023 and 2022, and $612 thousand for both the six months ended June 30, 2023 and 2022[79] - All charter-in agreements for third-party vessels were short-term leases (less than twelve months), and the Company elected not to recognize right-of-use assets and lease liabilities for these[80] 13 - Stock-Based Compensation This note details stock-based compensation plans, including stock options, restricted stock units, and PRSUs Stock Options This sub-note provides information on the company's stock option activity and related compensation expense - The unamortized stock-based compensation balance of $32 thousand as of June 30, 2023, is expected to be expensed by the end of 2024[83] Stock Option Activity (Six Months Ended June 30, 2023) | Metric | Number of Options | Weighted Average Exercise Price | | :------------------------------------------ | :---------------- | :------------------------------ | | Outstanding as of January 1, 2023 | 415,227 | $7.91 | | Exercised | (47,037) | $7.70 | | Outstanding as of June 30, 2023 | 368,190 | $7.93 | | Exercisable as of June 30, 2023 | 331,880 | $7.72 | Stock Option Amortization Expense (USD) | Period | 2023 | 2022 | | :------------------------------------------ | :--- | :--- | | Three Months Ended June 30 | $15 | $55 | | Six Months Ended June 30 | $58 | $168 | Restricted Stock Units This sub-note details the activity of restricted stock units and their associated compensation costs - The total fair value of RSUs that vested during H1 2023 was $3,923 thousand (vs $3,733 thousand in H1 2022)[87] - Unrecognized compensation cost of $6,599 thousand related to RSUs will be recognized over a weighted-average period of 1.84 years as of June 30, 2023[88] Unvested RSU Activity (Six Months Ended June 30, 2023) | Metric | Number of RSUs | Weighted Average Grant Date Price | | :------------------------------------------ | :------------- | :-------------------------------- | | Outstanding as of January 1, 2023 | 641,972 | $15.74 | | Granted | 205,118 | $16.30 | | Vested | (219,649) | $14.32 | | Forfeited | (49,322) | $16.42 | | Outstanding as of June 30, 2023 | 578,119 | $16.41 | RSU Amortization Expense (USD) | Period | 2023 | 2022 | | :------------------------------------------ | :---- | :---- | | Three Months Ended June 30 | $1,089 | $771 | | Six Months Ended June 30 | $2,605 | $1,348 | Performance-Based Restricted Stock Units This sub-note describes performance-based restricted stock units, their vesting conditions, and unrecognized compensation costs - PRSUs are contingent upon the Company's relative Total Shareholder Return (TSR) and Return on Invested Capital (ROIC) for a three-year performance period ending December 31, 2025[89][90][91] - Unrecognized compensation cost of $1,399 thousand related to PRSUs will be recognized over a weighted-average period of 2.51 years as of June 30, 2023[92] PRSU Amortization Expense (USD) | Period | 2023 | 2022 | | :------------------------------------------ | :--- | :--- | | Three Months Ended June 30 | $115 | $0 | | Six Months Ended June 30 | $115 | $0 | 14 - Legal Proceedings This note discloses information regarding ongoing legal claims and the company's defense strategy - A sub-charterer asserted a claim for monetary losses against the Genco Constellation, leading to its arrest in Ghana in December 2022 and February 2023, causing the vessel to not generate revenue[94] - The Company believes these claims are without merit, has valid defenses, and is vigorously defending them while seeking reimbursement for damages, including lost revenue and legal fees[94] - Arbitration proceedings have been initiated after obtaining security from BG Shipping Co. Limited[94] 15 - Subsequent Events This note reports significant events occurring after the balance sheet date but before financial statement issuance - On July 3, 2023, the Company made a voluntary debt repayment of $8,750 thousand under the $450 Million Credit Facility[96] - On August 4, 2023, a regular quarterly dividend of $0.15 per share was announced, expected to be approximately $6.5 million, payable around August 23, 2023[96] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operating results, highlighting key performance drivers, market trends, capital allocation strategy, and future outlook. It also includes a 'Safe Harbor' statement for forward-looking information General Business Overview This section overviews drybulk shipping operations, fleet, capital allocation strategy, and environmental compliance - The Company operates a fleet of 44 drybulk vessels (17 Capesize, 15 Ultramax, 12 Supramax) with an average age of approximately 11.4 years, transporting iron ore, coal, grain, and other drybulk cargoes worldwide[101] - The capital allocation strategy, implemented in April 2021, focuses on compelling dividends, financial deleveraging, and accretive fleet growth[104][105] - Since 2021, the Company has paid down $295.7 million of debt, resulting in a debt balance of $153.5 million as of June 30, 2023 (a 66% reduction from January 1, 2021)[104] - Total liquidity as of June 30, 2023, was $260.9 million, comprising $53.9 million cash and $207.0 million undrawn revolver availability[104] - The Company initiated a comprehensive plan to comply with IMO 2023 regulations (EEXI and CII) and plans to invest in energy-saving devices and high-performance paint systems[105][107] - New IMO targets for greenhouse gas emissions reductions compared to 2008 levels are 20% (striving for 30%) by 2030, 70% (striving for 80%) by 2040, and net zero at or around 2050[108] Factors Affecting Our Results of Operations This section analyzes key operational metrics and their impact on financial performance, including fleet data Fleet Data (Three Months Ended June 30) | Metric | 2023 | 2022 | Increase (Decrease) | % Change | | :------------------------------------------ | :----- | :----- | :------------------ | :------- | | Total Ownership days | 4,004.0 | 4,004.0 | — | — % | | Total Chartered-in days | 70.0 | 145.7 | (75.7) | (52.0)% | | Total Available days (owned & chartered-in) | 3,969.2 | 3,655.5 | 313.7 | 8.6 % | | Total Operating days | 3,918.9 | 3,610.7 | 308.2 | 8.5 % | | Fleet utilization | 97.8 % | 97.2 % | 0.6 % | 0.6 % | Average Daily Results (Three Months Ended June 30) | Metric | 2023 | 2022 | Increase (Decrease) | % Change | | :------------------------------------------ | :----- | :----- | :------------------ | :------- | | Fleet average TCE rate | $15,556 | $28,756 | $(13,200) | (45.9)% | | Major bulk vessels TCE rate | $19,468 | $27,034 | $(7,566) | (28.0)% | | Minor bulk vessels TCE rate | $12,994 | $29,551 | $(16,557) | (56.0)% | | Fleet average daily vessel operating expenses | $5,641 | $7,358 | $(1,717) | (23.3)% | Fleet Data (Six Months Ended June 30) | Metric | 2023 | 2022 | Increase (Decrease) | % Change | | :------------------------------------------ | :----- | :----- | :------------------ | :------- | | Total Ownership days | 7,964.0 | 7,953.9 | 10.1 | 0.1 % | | Total Chartered-in days | 305.6 | 456.6 | (151.0) | (33.1)% | | Total Available days (owned & chartered-in) | 8,034.7 | 7,729.9 | 304.8 | 3.9 % | | Total Operating days | 7,898.0 | 7,568.0 | 330.0 | 4.4 % | | Fleet utilization | 97.2 % | 95.6 % | 1.6 % | 1.7 % | Average Daily Results (Six Months Ended June 30) | Metric | 2023 | 2022 | Increase (Decrease) | % Change | | :------------------------------------------ | :----- | :----- | :------------------ | :------- | | Fleet average TCE rate | $14,757 | $26,354 | $(11,597) | (44.0)% | | Major bulk vessels TCE rate | $17,759 | $25,649 | $(7,890) | (30.8)% | | Minor bulk vessels TCE rate | $12,869 | $26,749 | $(13,880) | (51.9)% | | Fleet average daily vessel operating expenses | $5,899 | $7,100 | $(1,201) | (16.9)% | Operating Data This section presents a summary of key operating and financial performance metrics for the reported periods Operating Data (Three Months Ended June 30, USD Thousands) | Metric | 2023 | 2022 | Change | % Change | | :------------------------------------------ | :----- | :----- | :----- | :------- | | Voyage revenues | $90,556 | $137,764 | $(47,208) | (34.3)% | | Total operating expenses | $77,529 | $88,569 | $(11,040) | (12.5)% | | Operating income | $13,027 | $49,195 | $(36,168) | (73.5)% | | Net income attributable to Genco | $11,562 | $47,382 | $(35,820) | (75.6)% | | EBITDA | $29,964 | $64,240 | $(34,276) | (53.4)% | Operating Data (Six Months Ended June 30, USD Thousands) | Metric | 2023 | 2022 | Change | % Change | | :------------------------------------------ | :----- | :----- | :----- | :------- | | Voyage revenues | $184,947 | $273,991 | $(89,044) | (32.5)% | | Total operating expenses | $167,478 | $182,703 | $(15,225) | (8.3)% | | Operating income | $17,469 | $91,288 | $(73,819) | (80.9)% | | Net income attributable to Genco | $14,196 | $89,071 | $(74,875) | (84.1)% | | EBITDA | $49,802 | $122,212 | $(72,410) | (59.2)% | Results of Operations This section provides a detailed comparative analysis of financial performance for Q2 and H1 2023 versus 2022 Q2 2023 vs Q2 2022 Performance Analysis This sub-section analyzes quarter-over-quarter changes in voyage revenues, operating expenses, and other financial metrics - Voyage revenues decreased by $47.2 million (34.3%) to $90.6 million, primarily due to lower rates for minor and major bulk vessels, as spot freight rates remained volatile and demand softened[129] - The average TCE rate for the overall fleet decreased 45.9% to $15,556 per day, with major bulk vessels down 28.0% and minor bulk vessels down 56.0%[130][131] - Voyage expenses decreased by $3.6 million (11.2%) to $28.8 million, mainly due to lower bunker consumption and decreased fuel prices[124][133] - Vessel operating expenses decreased by $6.9 million (23.3%) to $22.6 million, driven by lower COVID-19 related expenses, reduced purchase of stores/spare parts, and lower repair/maintenance costs[124][134] - Average daily vessel operating expenses (DVOE) decreased to $5,641 per vessel per day from $7,358 per day[135] - Charter hire expenses decreased by $4.0 million (79.4%) to $1.0 million, due to a decrease in chartered-in days and lower hire rates[124][138] - General and administrative expenses increased by $0.5 million (8.7%) to $6.9 million, primarily due to higher nonvested stock amortization expense[124][140] - Depreciation and amortization expense increased by $2.3 million (15.6%) to $16.8 million, primarily due to increased drydocking amortization for major bulk vessels[124][142] - Interest expense decreased by $0.3 million to $2.1 million, mainly due to lower outstanding debt and settlement payments from interest rate cap agreements, partially offset by higher interest rates[143] H1 2023 vs H1 2022 Performance Analysis This sub-section analyzes year-to-date changes in voyage revenues, operating expenses, and other financial metrics - Voyage revenues decreased by $89.0 million (32.5%) to $184.9 million, primarily due to lower rates earned by minor and major bulk vessels[147] - The average TCE rate for the overall fleet decreased 44.0% to $14,757 per day, with major bulk vessels down 30.8% and minor bulk vessels down 51.9%[148] - Fleet utilization increased from 95.6% to 97.2%, primarily due to less offhire and repair periods for Supramax vessels and less scheduled drydocking for Capesize vessels[149] - Voyage expenses decreased by $4.7 million (6.6%) to $66.3 million, due to decreased bunkers consumed during short-term time charters and lower fuel prices[125][150] - Vessel operating expenses decreased by $9.5 million (16.8%) to $47.0 million, attributed to lower COVID-19 related expenses, reduced purchase of stores/spare parts, and lower repair/maintenance costs[125][151] - Average daily vessel operating expenses (DVOE) decreased to $5,899 per vessel per day from $7,100 per day[152] - Charter hire expenses decreased by $8.0 million (62.9%) to $4.7 million, due to a decrease in chartered-in days and lower hire rates[125][153] - General and administrative expenses increased by $2.3 million (18.2%) to $14.7 million, due to an increase in nonvested stock amortization expense and higher legal/professional fees[125][155] - Depreciation and amortization expense increased by $4.2 million (14.5%) to $32.7 million, primarily due to increased drydocking amortization for major bulk vessels[125][157] - Interest expense decreased by $0.4 million to $4.2 million, mainly due to lower outstanding debt and settlement payments from interest rate cap agreements, partially offset by higher interest rates[158] Liquidity and Capital Resources This section discusses liquidity sources and uses, capital allocation strategy, debt management, and dividend policy - Primary liquidity sources include cash flow from operations, cash on hand, equity offerings, and credit facility borrowings, used for vessel acquisitions, fleet renewal, drydocking, dividends, and debt repayments[161] - As of June 30, 2023, the Company had $47.9 million in unrestricted cash and cash equivalents, plus $207.0 million in undrawn revolver availability, totaling $260.9 million in liquidity[162] - The Company made $92.5 million in voluntary debt prepayments throughout 2022 and H1 2023, reducing its cash flow breakeven rate[164] - There are no mandatory debt repayments until $153.5 million in 2026, and the Company intends to continue voluntary debt reduction towards a medium-term goal of zero net debt[164] - The $450 Million Credit Facility requires the aggregate appraised value of collateral vessels to be at least 140% of the outstanding loan principal[165] - The quarterly dividend policy, adopted in April 2021, calculates distributable cash flow based on operating cash flow less debt repayments, drydocking capital expenditures, and a reserve[169][171] - The declaration and payment of dividends are subject to legally available funds, compliance with obligations, and the Board's discretion, considering financial performance and market developments[172][174] - The Company completed drydocking for three vessels in H1 2023 and estimates two more for the remainder of 2023 and 13 vessels in 2024[199] Estimated Drydocking and Fuel Efficiency Upgrade Costs (USD Millions) | Period | Estimated Drydocking Costs | Estimated Fuel Efficiency Upgrade Costs | Estimated Off-hire Days | | :------------------------------------------ | :------------------------- | :-------------------------------------- | :---------------------- | | July 1 - December 31, 2023 | $3.2 | $2.4 | 70 | | 2024 | $19.4 | $4.0 | 385 | Critical Accounting Policies This section highlights accounting policies requiring significant judgment and estimates, particularly for vessel valuation Vessels and Depreciation This sub-section details the company's depreciation policy for vessels and its assessment of potential impairment - Vessels are depreciated on a straight-line basis over an estimated useful life of 25 years from delivery, based on cost less an estimated residual scrap value of $400/lwt[203] - As of June 30, 2023, 15 Capesize vessels had carrying values exceeding their vessel valuations (aggregate $100.5 million), indicating impairment, but no impairment losses were recorded based on anticipated undiscounted future net cash flows[206][207] - The Company was in compliance with the collateral maintenance covenant under its $450 Million Credit Facility as of June 30, 2023[205] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section details the company's exposure to market risks, primarily interest rate risk on its floating rate debt, which is managed through interest rate cap agreements. It also addresses derivative financial instruments and currency risk Interest Rate Risk This section describes the company's exposure to interest rate fluctuations on floating rate debt and mitigation strategies - The Company manages interest rate risk on its floating rate debt using two interest rate cap agreements with a total notional amount of $150.0 million as of June 30, 2023, expiring in December 2023 and March 2024[211] - A 1% increase in LIBOR or SOFR would result in an increase of $0.8 million in interest expense for the six months ended June 30, 2023[215] - The Company transitioned from LIBOR to SOFR rates for interest calculation effective June 30, 2023[214] - As of June 30, 2023, AOCI included $3.9 million related to interest rate cap agreements, expected to be reclassified into income over the next 12 months[213] Derivative Financial Instruments This section explains the company's use of derivative instruments, like interest rate caps and bunker swaps, and their accounting - The two interest rate cap agreements were initially designated and qualified as cash flow hedges, with changes in value deferred in AOCI and reclassified into Interest expense[217] - A portion of one interest rate cap agreement was dedesignated as a cash flow hedge in Q2 2022 due to outstanding debt being below the notional amount[218] - Bunker swap and forward fuel purchase agreements are used to reduce fuel price risk but do not qualify for hedge accounting; unrealized or realized gains/losses are recognized as other income (expense)[220] Currency and Exchange Rates Risk This section assesses the company's exposure to foreign currency exchange rate fluctuations - The majority of transactions and operating costs are denominated in U.S. Dollars, and the foreign exchange risk associated with operating expenses in other currencies is immaterial[221] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and reports no material changes in internal control over financial reporting during the quarter Evaluation of Disclosure Controls and Procedures This section reports on management's assessment of the effectiveness of disclosure controls and procedures - Management, including the CEO and CFO, concluded that the disclosure controls and procedures were effective as of June 30, 2023[222] Changes in Internal Control Over Financial Reporting This section discloses any material changes in internal control over financial reporting during the quarter - There were no changes in internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, the internal control over financial reporting[223] PART II —OTHER INFORMATION This part includes updates to risk factors and a list of exhibits filed with the quarterly report Item 1A. Risk Factors This section updates the risk factor related to acts of war, specifically highlighting the unpredictable impact of Russia's exit from the Black Sea Grain Initiative on Ukrainian grain shipments and drybulk markets, which could adversely affect the company's business and ability to pay dividends - Russia's exit from the Black Sea Grain Initiative on July 17, 2023, and subsequent attacks on ports, make future Ukrainian grain shipments and drybulk market impacts unpredictable[224] - Failure to reinstate the agreement or worsening of the war in Ukraine could adversely affect the Company's business, financial condition, results of operations, and ability to pay dividends[224] Item 6. Exhibits This section lists all supplementary documents and agreements filed as part of the quarterly report - The exhibits include various corporate governance documents such as Articles of Incorporation and By-Laws[226] - Stock-based compensation agreements, including Restricted Stock Unit Grant Agreements and Performance PRSU Grant Agreements, are filed as exhibits[226][229] - The Second Amendment to Credit Agreement dated May 30, 2023, is included as an exhibit[229] - Certifications of the Chief Executive Officer and President (31.1, 32.1) and Chief Financial Officer (31.2, 32.2) are part of the exhibits[229] - Inline XBRL formatted financial statements (Exhibit 101) and the Cover Page Interactive Data File (Exhibit 104) are also included[229]