Genco Shipping & Trading - Q1 2024

Transcript

Operator (participant)

Good morning, ladies and gentlemen, and welcome to the Genco Shipping & Trading Ltd first 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 800-938-2487 and entering the passcode 24967. At this time, I will now turn the conference over to the company. Please go ahead.

Peter Allen (CFO)

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 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 31st, 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.

John Wobensmith (CEO)

Good morning, everyone. Welcome to Genco's first quarter 2024 conference call. In addition to reviewing our Q1 2024 and year-to-date highlights, we want to use this opportunity to provide an update on the progress we are making three years into our comprehensive value strategy, as well as on the industry's current fundamentals. We will then open up the call for questions. For additional information, please also refer to our earnings presentation posted on our website. Separately from our earnings release, we issued a press release yesterday with the news that leading proxy advisory firm ISS made recommendations consistent with those of our board for all of the items to be voted on at our annual meeting of shareholders this year.

While we are pleased with this result, the focus of our call this morning will be over the results for the first quarter of 2024 and the ongoing implementation of our comprehensive value strategy. If you wish to see more information regarding matters to be voted on at our annual meeting, please refer to the press release I mentioned or our website at www.voteforgenco.com. Beginning on slide five, during the first quarter, we further executed our value strategy, which is aimed at driving returns through the dry bulk cycles and creating sustained long-term shareholder value. Building on a solid end to 2023, Q1 2024 marked another strong quarter for Genco.

We drew on our leading commercial platform and significant operating leverage to generate Q1 net income of $18.8 million, driven by a fleet-wide time charter equivalent rate of $19,219. Notably, Q1 TCE increased relative to Q4 for the first time in over 15 years. In terms of shareholder returns, we increased the Q1 dividend quarter-over-quarter to $0.42 per share, as our strong Q1 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 7% as we approach our goal of net debt zero.

Turning to slide six, we provide a snapshot of how our approach to capital allocation, centered around dividends, deleveraging, and growth, has developed since implementing our value strategy a little over three years ago. In 2021, we laid out a clear path and related objectives to transfer Genco into a low-leverage, high dividend-yielding company with significant financial flexibility to provide shareholders with returns and opportunistically grow through the dry bulk shipping cycles. Since that time, we have paid down $279 million of debt while distributing nearly $200 million to shareholders in the form of dividends and investing $236 million in our fleet.

As we implemented the strategy in 2021, we prioritized vessel acquisitions and debt paydowns to reduce our cash flow break-even when the cyclical turn in the market began, creating a strong foundation for the execution of our value strategy. Since 2022, we have continued to voluntarily pay down debt while increasing our focus on dividends. On page seven, we highlight the compelling dividends we have provided to shareholders. The first quarter dividend marks our 19th consecutive quarterly dividend payment, representing the longest period of consecutive dividends in our peer group. Over this time, we have declared $5.57 per share in dividends, or approximately 25% of the current share price. Complementing shareholder returns during Q1, we continue to prioritize fleet renewal, as highlighted on page eight.

Following the timely acquisition of two high-specification Capesize vessels in Q4, we divested 3 2009-2010-built vessels that delivered to buyers in Q1 and early Q2, 2024. Through these transactions, we have improved the fuel efficiency of our fleet, increased our earnings power, reduced our fleet's average age, and saved approximately $10 million in dry docking CapEx for 2024. Importantly, we also increased utilization in the current strong market. With the execution of this phase of our fleet renewal plan, we have further advanced our barbell approach to fleet composition, as shown on page nine. Capesize vessels provide high operating leverage and upside potential, with a focus on the iron ore, coal, and bauxite trades, while the minor bulk vessels provide more stable earning streams, operate on diverse trade routes, and are more closely linked to global GDP growth.

We believe owning ships in both of these sectors support Genco's value strategy. Moving forward, we continue to evaluate further opportunities in the sale and purchase market to further renew our fleet. Turning to slide 10, we continue to generate strong TCE performance. In Q1, our fleet-wide TCE increased by 38% on a year-over-year basis. Looking ahead to Q2, 65% of our available days are fixed to date at over $20,000 a day, pointing to another firm quarter, as this is well above our cash flow breakeven rate of approximately $10,000 per day. Turning to slide 11, we believe Genco remains in a highly advantageous position moving forward. Specifically, we have an industry-low net loan-to-value and cash flow breakeven rate and nearly $300 million in undrawn revolver availability. This provides significant financial flexibility and optionality for the company going forward.

We believe our low-leverage, high-dividend payout model, executed in scale, is industry-leading in the dry bulk shipping public markets. Given the volatility and cyclicality of dry bulk shipping, we also believe it creates a favorable risk-reward balance to provide sizable returns to shareholders, opportunistically grow the fleet, and enhance our earnings powers through the cycles. I will now turn the call over to Peter Allen, our Chief Financial Officer.

Peter Allen (CFO)

Thank you, John. On slides 13 through 15, we highlight our first quarter financial results. Genco recorded net income of $18.8 million or $0.44 and $0.43 basic and diluted earnings per share, respectively. Adjusted net income amounted to $21.4 million, or basic and diluted earnings per share of $0.50 and $0.49, excluding other operating expenses of $1.8 million, loss on sale of vessels of $1 million, and unrealized fuel gains of $0.2 million. Adjusted EBITDA for Q1 totaled $41.9 million, more than double the total from the same period of 2023. During the first quarter, our net revenues increased by 44% on a year-over-year basis, while our recurring cost structure remained approximately flat over the period, illustrating the high degree of operating leverage inherent in the business.

This operating leverage is best displayed by our Capesize vessels, which earned a TCE of $25,600 per day in Q1 2024, nearly $10,000 per day higher than the same period of last year. With such operating leverage, there's less of a need for financial leverage to achieve strong returns. On slide 16, we highlight the trajectory of our debt outstanding and our continued voluntary debt repayments. In the year to date, we have utilized the built-in flexibility of our $500 million revolving credit facility to voluntarily pay down $85 million of debt so far this year, primarily utilizing proceeds from vessel sales.

On a go-forward basis, we estimate these debt paydowns will reduce interest expense by approximately $5 million on an annualized basis, or approximately $350 per vessel per day on our cash flow breakeven rate. We have now paid down nearly 75% of our debt, or $334 million, resulting in a pro forma net loan-to-value ratio of 7%. Given our 100% revolving credit facility, we plan to continue to actively manage our debt balance to save on interest expense, while opportunistically drawing down for vessel purchases, given our nearly $300 million of undrawn capacity at the end of Q1. Moving to slide 17, we highlight our transparent dividend policy, which targets a distribution based on 100% of excess quarterly cash flow, excluding maintenance and withholding for future investment.

The nature of our variable dividend policy and our fleet's operating leverage enables shareholders to directly benefit from freight rate increases, as we've seen over the last couple of quarters. Our Q1 2024 dividend represents an annualized yield of 7.4% on the current share price, well above two-year U.S. Treasury rate of approximately 4.8%. Looking ahead to Q2 2024, we anticipate our cash flow breakeven rate, excluding incremental annual meeting-related expenses, to be $10,207 per vessel per day, well below our Q2 TCE estimates to date of $20,126 for 65% fixed, pointing to another strong quarter. These incremental annual meeting-related expenses will also be excluded from the Q2 dividend calculation. I will now turn the call over to Michael Orr, our dry bulk market analyst, to discuss the industry's current fundamentals.

Michael Orr (Dry Bulk Market Analyst)

Thank you, Peter. As depicted on slide 19, the dry bulk market remained at elevated levels during the first quarter. These strong rates occurred during the historically softest quarter of the year for freight rates. However, Q1 Capesize rates reached a 15-year high for the period, driven by continued tightness of vessel supply in the Atlantic Basin and relatively dry weather in Brazil, enabling increased iron ore exports. In Q2 to date, Capesize and Supramax rates remain at firm levels, experiencing a strong push in recent days to approximately $28,000 and $16,000 per day, respectively. With a well-balanced dry bulk market, as we have seen in recent years, events that impact the supply of ships can have an effect on the freight market. As highlighted on slides 20 and 21, low water levels in the Panama Canal impacted the number of ships that could transit, resulting in heavy delays and rerouting of vessels. Initially, vessels were diverted through the Suez Canal.

However, attacks on commercial vessels in the region led many shipping companies to no longer transit the Southern Red Sea and Gulf of Aden area, further disrupting the efficiency of the global dry bulk fleet. Regarding the Chinese steel complex on slides 22 and 23, China's iron ore imports rose by 5% in Q1 2024, year-over-year, while iron ore port inventories have been building since October. In terms of steel production, the World Steel Association have forecast China's output to remain at around 2023 levels, while the rest of the world is expected to see growth of 4%, led by 8% growth from India, pointing to an increase in demand from developed countries and support from secondary trade routes. In terms of the grain trade, we are currently in the midst of the South American grain season.

The USDA is forecasting a substantial increase in exports from both Brazil and Argentina. An additional 25 million tons of corn and soybeans are expected to be shipped this marketing year, helping support minor bulk rates. Regarding the supply side outline on slides 25-27, net fleet growth in 2023 was 3%. Historically low order book as a percentage of the fleet, as well as near-term and longer-term environmental regulations, are expected to keep net fleet growth low in the coming years. While we expect volatility in the freight market, the foundation of a low supply growth picture provides a solid basis for our constructive view of the dry bulk market going forward. This concludes our presentation, and we would now be happy to take your questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now conduct the question-and-answer session. If you would like to ask a question, please press star and one on your telephone keypad. You may withdraw your question by pressing star two. Once again, to ask a question, please press star and one on your telephone keypad. We'll take our first question from Omar Nokta with Jefferies. Please go ahead.

Omar Nokta (Managing Director)

Thank you. Hey, guys. Good morning. Nice quarter.

John Wobensmith (CEO)

Good morning.

Omar Nokta (Managing Director)

And-

John Wobensmith (CEO)

Thank you.

Omar Nokta (Managing Director)

Yeah. Yeah, yeah. So, I mean, obviously, we're seeing a strong Cape market, and, and your averages so far point to, you know, the solid earnings continuing into the second quarter. You talked a bit here on the market. There's been a lot of discussion on bauxite over the past several months or quarters, really, as a new trade in the, in the market that's really supportive of Capes. Maybe could you just give a little bit more color, kind of in how that market or how that trade has been developing? Because as in the past, it's always been Capes and iron ore, and those are two kind of married at the hip. How has bauxite come in and, and influenced things from your perspective here over the past, you know, few quarters or so?

John Wobensmith (CEO)

Well, I think, you know, Omar, I wouldn't necessarily call it a new trade, because it's been around for a few years, but it's now getting to the point where it's meaningful in terms of ton miles. And so there's a significant amount of bauxite that's, as you said, coming out of West Africa. It's going to Asia, so it's a relatively long route, creating ton miles. The nice thing about the bauxite trade also is there's still growth that is projected for this year and next year. And it clearly is supplementing the iron ore trade, coming out of Brazil.

So you're getting, you know, more of a, a balanced Atlantic Basin versus, you know, what, what's happening in Australia in terms of, in terms of the iron ore trade. And, you know, just going back to the, to the growth numbers, I mean, we're, we're projecting in 2024, this year, you know, 8% year-on-year growth, on a, on a tonnage basis.

Omar Nokta (Managing Director)

Okay. Thanks, John. Then I guess maybe just on that, you, you mentioned the balanced sort of Atlantic market. You know, iron ore tends to be, so obviously a big chunk of the total dry bulk trade, but it tends to have volatility, especially kind of Brazil, being a bit more of a swing, perhaps, especially in the beginning of the year, usually, although we haven't seen it this year. From, from your kind of eyes or your lens on bauxite, does that, does that exhibit similar type of volatility normally, or is it more of a consistent, as you mentioned, just gradual growth, in terms of cargo?

Michael Orr (Dry Bulk Market Analyst)

Yeah. Hi, Omar. I'll take that one. So yeah, you're definitely right. There is a certain amount of volatility on the bauxite trade. There's. In Q3, there tends to be the rainy season, so there is that seasonality. It gives, you know. It's important on the Capes to have that extra option within the Atlantic Basin. This year, and particularly in Q1, we saw Brazilian iron ore exports up 12% year-over-year in Q1. Also saw strong bauxite exports. That just gives more optionality within an already tight Atlantic Basin. But yeah, there is that additional seasonality in Q3 with the rainy season with bauxite, and then it picks up sequentially in Q4.

John Wobensmith (CEO)

Obviously Q3 and Q4 are strong periods for Brazilian iron ore, traditionally.

Omar Nokta (Managing Director)

Got it. Okay, thank you. And then maybe just one, one final one for me, guys. Thanks for that color. Is, you know, noticed you've, you've fixed the Genco Liberty for, for one year here, um, at $35,000, which is, you know, clearly above what I would say, the market averages we've seen recently. It's also seemingly above the forward FFA curve. It's above, at least visibly, the one-year time charter assessments from various broker houses. Kind of what's happened, I guess, is the market stronger than headline rates or index rates or assessments? Is this repeatable, this $35,000? Any color you can give perhaps just on kind of that versus what we kind of see day-to-day-

John Wobensmith (CEO)

Sure

Omar Nokta (Managing Director)

- in the, in the Baltic?

John Wobensmith (CEO)

Yeah. Sure. Well, look, from a perspective, you know, we did that a little while ago. And so, you know, at least the FFA market was a little bit higher than what it is today, though we've certainly seen it recover over the last two weeks. That would be a difficult rate to recreate today. However, you know, it... Look, it shows you how we think in terms of... And we've said this from time to time, you know, when we see good rates and there's liquidity in the market, particularly in the Capes, we'll take the opportunity to take some risk off the table from a portfolio approach. And that's exactly what we did with the Liberty.

So, you know, we're gonna keep an eye on the market and make those decisions going forward. But the Cape market's strong, and I think, you know, we talk about supply and the low supply situation all the time, and it's very much still the case with the low order book. I think the biggest change that we've seen over the last few years is that because of that low supply, when you do have demand-incremental demand movements to the upside, you immediately see it in the freight markets. And I'm sure you can remember back in 2015 and 2016 when we had an oversupply situation and, you know, you could have had massive amounts of new iron ore come in and freight rates wouldn't move. It's just not the case today.

There's a very good supply and demand balance. So when you have incremental up, up movements in, in demand, you see it in the freight market.

Omar Nokta (Managing Director)

Yeah. No, definitely. Yep, agree with... Well, thanks, John. Very, very helpful context. I'll, I'll turn it over.

John Wobensmith (CEO)

Thanks, Omar.

Operator (participant)

We'll take our next question from Liam Burke with B. Riley. Please go ahead.

Liam Burke (Managing Director)

Thank you. Good morning, John. Good morning, Peter.

John Wobensmith (CEO)

Morning, Liam.

Liam Burke (Managing Director)

John, you've balanced your barbell strategy on the fleet. You're always looking to manage your assets. With asset values so high, what does it look like for your ability to add more vessels?

John Wobensmith (CEO)

So I kind of look at it in terms of maybe three buckets. You know, from a fleet renewal standpoint, we're gonna continue to do that. We're gonna continue to dispose of our older ships and redeploy that capital into newer, more fuel-efficient assets, which obviously increase our potential earnings power and potential dividend payouts. When you look at just buying vessels for cash these days, I do think, you know, values are in the 90th percentile, which is great, but obviously there's an elevated level of risk at buying at those levels.

I am hopeful, optimistic that our equity will continue to, you know, really close the gap on NAV. I mean, we're pretty close now, so that you can then, you know, start using, if for the proper deal, you can use your equity as currency. And I think that, you know, will make sense if you're buying assets in this market. So those are sort of the three ways I look at it.

Liam Burke (Managing Director)

Great. Thanks, John. And on the Capesize time charters, you've with the index, you're really, you know, overearning on those assets. Do you see more opportunities to time charter the Capesize, or is there any thought where you can do some longer-term charters on your non-Capesize vessels?

John Wobensmith (CEO)

Look, the index deals are obviously great. We've picked some pretty good spots on timing when to pull the trigger on the index deals. And as you said, they are earning quite a premium to the BCI plus scrubber economics on top of it. In terms of fixed rate, I talked about the Liberty earlier on the call. We will, from time to time, as this market you know continues to exhibit volatility, we'll take the advantage of putting a ship away and taking exposure off the table in the Capesize. I wouldn't say... It's not as much of a focus in the minor bulks.

You know, that is a robust commercial trading platform where we're creating arbitrage opportunities and, you know, really outperforming our benchmarks because of that platform. That doesn't mean to say that, you know, if we see a really good rate on the one-year side, that we won't do it. But I think it's more of a focus on Cape just because of the volatility that exists.

Liam Burke (Managing Director)

Great. Thank you, John.

John Wobensmith (CEO)

Thanks, Liam.

Operator (participant)

Our next question comes from Sherif Elmaghrabi with BTIG. Please go ahead.

Sherif Elmaghrabi (Equity Research Associate)

Hi, good morning. Thanks for taking my questions.

John Wobensmith (CEO)

Good morning.

Sherif Elmaghrabi (Equity Research Associate)

First, on the debt, Genco doesn't have scheduled amortization, but you have been regularly paying down almost $9 million until this year, where repayments have stepped up. So my question is, how are you thinking about voluntary repayments going forward, especially now that the debt per vessel is so low?

Peter Allen (CFO)

Thanks, Sherif. Yeah, it's debt per vessel is under $3 million per ship, which is pretty remarkable when you think of where scrap value is in that sense, and also where the vessel values are as well. So it's a very low leverage situation, as you alluded to. In terms of our debt or voluntary debt repayments, 'cause we don't have any scheduled debt amortization until facility maturity in 2028. With a full RCF structure that we have currently, we're really managing our debt balance to save interest expense and essentially reduce our breakeven and increase our dividend capacity. So, we're really focused on paying down whatever debt we do have.

But we did, you know, sell $65 million worth of ships this year to date, so we took that cash and paid down the RCF, knowing full well that if we do need it, we can redraw. So on a go-forward basis, it's still that $8.75 million target, $35 million for the year. But, you know, we'll actively manage it with the RCF structure, knowing that we won't lose our borrowing capacity.

John Wobensmith (CEO)

Yeah, and I would add, you know, that, that $8.75 is part of the overall reserve, which, you know, which includes paying down the debt, but also keeping monies held back for fleet renewal, as obviously it's a in shipping, you have depreciating assets. But look, from time to time, we'll obviously look at that reserve, make sure it's appropriate based on our capital allocation. You know, we'll continue to look at all avenues within capital allocation and make the right decision at the board level. But it-- you know, we are obviously getting closer to our target of net debt zero. So, you know, you're-- we're looking at quite a few things these days.

Sherif Elmaghrabi (Equity Research Associate)

Thanks. That's really good color. And then on fleet management, what sort of specs do you look for in a vessel that you might acquire? You know, you sold three older ships, added two in Q4, but especially given where values have climbed to, and, and I'm curious also, how numerous are those opportunities in the sale and purchase market?

John Wobensmith (CEO)

So we're solely focused on, you know, what I would refer to as eco vessels, which are really, in the end of the day, 2015 and newer, that carry the much more fuel-efficient engine designs. That, you know, that's paramount for us. I would say in the Capesize market, it's not as easy. Those ships do not come up for sale as often. You know, the deal that we were able to do in December was, you know, it's just a fantastic deal. The timing was good, but also the ability to get our hands on those two modern Capesize ships. It's quite a bit easier in the Ultramax sector. There's just more liquidity, more assets available for sale.

But, you know, patience pays off, as you saw with what we did in December. So I'm confident that we'll be able to continue the fleet renewal strategy.

Operator (participant)

Thank you. Once again, that is star and one on your telephone keypad, if you would like to join the queue. We will move next with Poe Fratt, with Alliance Global Partners. Please go ahead. Poe, your line is open.

Poe Fratt (Equity Research Analyst)

Good morning, John. Good morning, Peter. Sorry about that.

John Wobensmith (CEO)

Hi, Poe.

Poe Fratt (Equity Research Analyst)

Hey, you, you mentioned, John, on the S&P market, you know, that you potentially, as your stock moves up closer to NAV, it potentially becomes a, you know, an arrow in the quiver, so to speak. Have you turned any deals down, you know, in the past because of your equity value, where the seller's been looking for equity?

John Wobensmith (CEO)

I don't – I wouldn't go so far as to say we've turned things down. It's probably more of, we've opted not to do things be– you know, with equity. You know, clearly issuing equity below NAV is dilutive, and that's not something we're looking to do. But yeah, as I said before, you know, we're getting very close to NAV, and I'm cautiously optimistic that we'll get there and hopefully above that, as the value strategy continues. And then you have that as, as you said, you have that arrow in your quiver in terms of an option, to use it as, hopefully a large piece of the purchase price.

Poe Fratt (Equity Research Analyst)

Okay, great. And then when you look at your forward cover, you know, really strong on Capes, a little more muted on the Ultra and Supras, can you give me an idea of sort of how the rest of the quarter looks? I mean, where are you currently booking Capes versus the Ultras and Supras? My sense is that the Cape market's down a little bit, you know, relative to the first, you know, when you would've been booking in March and April, and the Ultra and Supras is up a little bit. Is that, you know, directionally correct? Or can you just give me sort of a flavor of how you're, you know, where you're booking right now?

John Wobensmith (CEO)

.Well, spot rates for Capes are, you know, around $29,000 a day today, right? And, you know, keeping in mind, we have those index deals, right? That are earning significant premiums above that BCI number that I just quoted. I think when you look at the Atlantic Basin, the numbers are a little bit higher. And, you know, we do tend to break the fleet up a little bit. You know, we do have a couple ships that are ballasting to the Atlantic right now, though we haven't fixed them. So I think what you're referring to is, you know, the market definitely softened up a few weeks ago. But then, you know, the last two weeks, we've seen strengthening again, right? So...

And I, and I think we were in a pretty good position a few weeks ago because we just didn't have a lot of ships open. Whereas now we have ships that are opening up again in a little bit of a stronger market. But, you know, it's all relative, Poe. I mean, these numbers are all pretty good, right? You know-

Poe Fratt (Equity Research Analyst)

No, no, no, no-

John Wobensmith (CEO)

Even the softness that we saw a few weeks ago, you know, we were still, you know, very high numbers on Capes in particular.

Poe Fratt (Equity Research Analyst)

Yeah, no, no reason to complain. Can you talk about, you know, the Ultra and Supras, you know, where you sort of see the rest of the quarter there and where the current rates are?

John Wobensmith (CEO)

Well, I mean, as I said, the spot rates, you know, forgetting any adjustments for scrubbers or, you know, or fuel efficiency of vessels. You know, spot rates in the Capes are somewhere around 29. Spot rates on the Ultra Supras are, you know, 14.5, 15 today. It's hard to predict, you know, what the next 25% or 35% of fixtures is gonna be. But as you also know, we're very good that once we get into sort of the low to mid-90s on a percentage basis of fixing for the quarter, we put out the average fleet rate on a TCE basis to give guidance for people for that quarter, which will-

Poe Fratt (Equity Research Analyst)

Okay.

John Wobensmith (CEO)

Which we'll continue to do that.

Poe Fratt (Equity Research Analyst)

I'll wait for that then. And then, Peter, can we just clarify on two questions on the cost side? One's a clarification, but I think I heard you say that the annual meeting costs that, you know, it looks like around about $5.5 million this quarter, will be excluded from the dividend calculation. So, you know, that, that won't impact your, you know, your dividend payout?

Peter Allen (CFO)

Yeah. Hi, Poe, that's correct. So, for Q2, it'll be estimated about $4.5 million, and that would be excluded from the dividend calculation. That's correct. Just like it was in Q1.

John Wobensmith (CEO)

Meaning it will not take-

Poe Fratt (Equity Research Analyst)

Sorry.

John Wobensmith (CEO)

Meaning it will not take away from the dividend payout potential.

Poe Fratt (Equity Research Analyst)

Understood. Sorry, I'd written down 4.5. And then can you just talk about, you know, your cost guidance on page 39? You know, in the appendix, it looks like you're running a little bit higher on the OpEx side and the G&A side. Are those just first half, you know, cadence, and that we should potentially see OpEx and G&A come down over the second half of the year? Or can you just give me a flavor about, you know, those two cost components?

Peter Allen (CFO)

Yeah, sure. So on the OpEx side, it's more timing related. First quarter, this number is actually not too far off from what our Q1 actuals were. But it is more timing related than anything else. We like to look at this stuff over a 12-month period, typically, than just three months, quarter to quarter. On the G&A side, a lot of that stuff is front-loaded as well, and we would anticipate that, you know, not really moving much, but you know, there is a front-loaded nature to the G&A side as well.

Poe Fratt (Equity Research Analyst)

Okay, great. Thanks for your time.

John Wobensmith (CEO)

Thank you, Poe.

Operator (participant)

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