Seanergy Maritime [SHIP] Conference call transcript for 2022 q2
2022-08-05 02:00:02
Fiscal: 2022 q2
Operator: Ladies and gentlemen, thank you for standing by and welcome to the Seanergy Maritime Holdings Corporation Second Quarter and First Half 2022 Financial Call. Please be advised that todayâs conference is being recorded. Please now turn to Slide 2 of the presentation. Many of the remarks today contain forward-looking statements based on the current expectations. Actual results may differ materially from the results projected from these forward-looking statements. Additional information concerning factors that can cause the actual results to differ materially from those in the forward-looking statements is contained in the second quarter 2022 earnings release, which is available on the Seanergy website, www.seanergymaritime.com. I would now like to turn the conference over to your speaker today, Stamatis Tsantanis. Please go ahead, sir.
Stamatis Tsantanis: Hello. I would like to welcome everyone to our conference call. Today, we are presenting the financial figures for the second quarter and first 6 months of 2022. We are also pleased to announce the distribution of another cash dividend this quarter. The second quarter was another outstanding period in terms of financial performance for Seanergy, supported by a healthy Capesize market and our effective commercial strategy that balances reward and risk for our shareholders. There are various negative events on a global scale, such as the ongoing conflict in Ukraine, the fears about inflation and the ensuing risk of recession as well as the COVID-19 related lockdowns in China. However, our view is that the robust fundamentals of the Capesize sector will provide for solid market conditions despite these uncertainties. Letâs start with second quarter and first half highlights. During the second quarter, we recorded net revenue of $32.8 million and adjusted EBITDA of $17.3 million up 18% and 53% respectively, compared to the second quarter of 2021. Net income was equal to $5.9 million compared to $2 million in the second quarter of 2021. The positive financial performance was driven both by the increased size of our fleet and by the 16% increase in the time charter equivalent and by our vessels. For the first 6 months of 2022, net revenue reached $62.5 million, which represents a new record for Seanergy. Adjusted EBITDA climbed to $34.1 million, posting a year-on-year increase of 77%, while net income amounted to $9.6 million. We reaffirm our commitment to rewarding our shareholders through the declaration of another regular dividend of $0.025 per share for the second quarter and the new buyback plan for up to $5 million, which was recently announced. I will expand on the shareholdersâ rewards deliverables in a minute. On a corporate level, during the second quarter, we concluded the spin-off of our wholly-owned subsidiary, United Maritime Corporation, which commenced trading on the Nasdaq Capital Markets on July 6, 2022, under the symbol USEA. All shares of USEA were distributed to our shareholders. As part of this transaction, the previously owned Capesize Gloriuship was spun-off to the new entity, which will be focusing on the tanker sector going forward. In order to replace our oldest vessel that was spun out to USEA, we acquired the 2010 built Japanese Capesize the Honorship, which improved our fleetâs average age and the overall operating margin of Seanergy. On the financing front, during the first 6 months of the year, we completed new financings and refinancings of $80.3 million, out of which $59 million were concluded in the second quarter of the year. As such, we continuously improve the capital structure of our company. In addition to these financings, we have received a commitment letter from a prominent European financial institution for the refinancing of an existing facility with current outstanding balance of $24.8 million, which matures in the end of the year. Our CFO will provide more color in a while. The total buybacks of convertible notes, warrants and common shares have now reached $26.7 million and can potentially rise to $31.7 million once our new buyback plan materializes. The regular dividend represents an annual dividend yield of 14% on a Tuesdayâs closing price. Since the start of our capital rewards program in the fourth quarter of 2021, a total of $44.7 million of Seanergyâs cash will have been allocated to shareholders rewarding actions. Turning to Slide 5. By adding the value of the noncash distribution of the United Maritimeâs shares under three different USEA price scenarios, the total dividend yield, cash and non-cash of Seanergy shares ranges between 16% and 24%, which is very impressive. Given our strong balance sheet position and modest CapEx requirements, we expect to continue to reward our shareholders in the next quarters. Our operating performance during the second quarter was robust for yet another period, given the prevailing freight market with an average TCE reaching $23,300 per day. Now as regards to the first 6 months of the year, we achieved an average TCE of approximately $21,200 per day outpacing the Baltic Capesize Index by approximately 17%. Our estimated TCE guidance for the third quarter is approximately $23,650 per day, assuming our earnings for the remaining operating days of an index-linked TCEs will be in line with the current FFA rate. Our performance is benefiting from the conversions of the floating daily rate of 3 of our vessels into fixed rates at an average level of about $36,000 a day. I also expect our commercial performance to remain solid in the second half of 2022, which represents the seasonally strongest part of the year. As an indication, if the BCI average in the second half of the year is at the current FFA rates, we expect full year EBITDA to reach approximately $76 million. Before I pass the call to Stavros, a quick fleet maintenance update. We have now completed our plan for installation of ballast water treatment system on 100% of our fleet, while we have continued with our fleet upgrading strategy by installing energy-saving devices on several vessels. These upgrades are typically accompanied by agreements with our charters to increase the daily high rate, reflecting the improved performance of the underlying vessels. I will now pass the call to our CFO, Stavros Gyftakis, who is going to discuss more thoroughly our financial results. I will come back at the end of the call for the market update shortly. So Stavros, please go ahead.
Stavros Gyftakis: Thank you, Stamatis. I would like to welcome everyone from my side as well to our second earnings call for this year. Let us start by reviewing the main highlights of our financial statements for the second quarter and 6 months period that ended on June 30, 2022. Net vessel revenue for the quarter was equal to $32.8 million, marking an increase of 18% from the second quarter of 2021, while the increase in the 6-month period stands at 30%. Meanwhile, our daily time charter equivalent for the second quarter reached $23,250 16% higher compared to $20,000 in the second quarter of 2021. Our chartering and freight hedging strategy was effective once again as our 6-month time charter equivalent exceeded the average Baltic Capesize Index by 17% with this outperformance expected to sustain based on the floating to fixed conversions for 3 of our vessels during the third quarter at an average gross daily rate of $36,000. Adding in this, we anticipate a further decrease in our interest expenses after the completion of the refinancing of our last maturity for 2022, as I will describe in a moment. Of course, the rising momentum of InterBank interest rates is expected to partly offset the positive effect of this transaction. At the same time, cash and cash equivalents, including time deposits at the end of the second quarter stood at $43 million, which leads to a net debt of $219 million. Total book value of shareholdersâ equity stood at $234 million. Adjusted EBITDA in the second quarter was approximately $17.3 million, up from $11.3 million in the same quarter of 2021. The 6-month adjusted EBITDA stood at $34.1 million with a year-over-year percentage increase reaching 77% over a 16% increase in a time charter equivalent, demonstrating once again our companyâs operating leverage. Net income for the quarter was $5.9 million compared to net income of $2 million in the same quarter last year. Adjusting this for non-cash charges, we end up at an adjusted net income of $7.1 million. Average daily operating expenses, excluding pre-delivery expenses were $6,510 in the first half with a year-over-year increase caused by the overall inflation on raw material prices, affecting all the aspects of our operating expenses, such as lubes, and spares as well as higher forwarding costs. In addition, we have increased crew costs due to the ongoing port restrictions having to do with COVID and of course, challenging in-sourcing and especially repatriating Ukrainian crew. Moving on to discuss our debt and financial expenses. Our fleet expansion and the financing of the Dukeship resulted in a total debt outstanding, reaching approximately $262 million, including convertible notes, with a debt per vessel standing at around $14.6 million. Our loan-to-value currently stands at 43%. And given the current scrap prices, all our indebtedness is covered by the demolition value per fleet. Meanwhile, the impact of our recent activity on the financing side is reflected in the reduced interest expense and extended loan maturities. Focusing on the cash interest expense, this stood at $2.5 million for last quarter, with interest expense per operating day standing at $1,900. Our continuous efforts to improve further in the financing expense front is also attested by the 4.2% cost of debt in the first half of 2022, which is approximately 1% lower compared to a year ago, and this despite the increase in the bankâs InterBank rate in the same period. As it concerns to the market value of our vessels, we posted another rise as of June 30, 2022, reaching approximately $584 million, which led to a corporate leverage of approximately 42%, considerably improved year-over-year. This underpins the timely execution of our acquisition program. Now the book value of our fleet is around $455 million, almost $130 million less than its market value. Moving on to our recent financial transactions. We continue our efforts to optimize our capital structure as we successfully concluded during this period, new financing and refinancings of $59 million with existing creditors. In particular, we entered into a $38 million sustainability-linked loan facility with Piraeus Bank with a twofold purpose: The refinancing of the existing facility on the one hand, at an improved rate of 3% over LIBOR; and the partial funding of the acquisition cost of our new Capesize vessel, the Honorship. The other transactions that closed during the second quarter was a new $21 million loan agreement with Alpha Bank at 295% over SOFR secured by the Dukeship. These transactions attest to our creditorsâ confidence in Seanergy and its prospects. Furthermore, we have obtained the commitment letter from Danish Ship Finance for a loan facility of up to $28 million. The interest rate will be 2.5% over SOFR, and the term of the loan will be 5 years. The proceeds from this agreement will be utilized to refinance the own existing facility with a balloon payment within 2022 and will be secured by the Premiership and the Fellowship. Through this transaction, we will have addressed all our loan maturities until the fourth quarter of 2023. In addition to all these materialized deals, we are in constant discussions with various international financing providers for prospective transactions that could further improve our capital structure, reduce our interest expense and provide liquidity for emerging opportunities. Lastly, I would like to state that Seanergy has been positioned through all these years at the proper place to be able to benefit from any market upsides. Our EBITDA at the end of the first half of 2022 was $28.9 million, a figure already much improved compared to the respective period of 2021. However, we firmly believe that we can efficiently take advantage of a market rise in the coming quarters and achieve a full year EBITDA at even more notable levels. For example, in case of Time Charter Equivalent is averaged at current 2022 FFA levels, our EBITDA is expected to reach $76 million, while it can even surpass $100 million in case that our Time Charter Equivalent reaches last yearâs average over this year. All in all, we are confident that Seanergy will continue in a solid performance path in the coming quarters, capitalizing on our enhanced operating leverage. This concludes my review. I would now turn the call back to Stamatis, who will discuss the market and industry fundamentals. Stamatis?
Stamatis Tsantanis: Thanks, Stavros. Letâs now have a more extensive view of the Capesize demand and supply fundamentals. Seasonal patterns are noticeable in the freight market for yet another year with a usually low first half being followed by an improved second half. Traditionally, of course, the second half of the year is the strongest. The average level of the Baltic Capesize Index for the first 6 months of the year was approximately $18,100 per day with a low of $5,800 per day and a high of $38,200 per day. Although the average performance of the index is lower compared to 2021, it stands much higher than the 10-year average of the first half performance. Given the global events and uncertainties, the Capesize market has been quite resilient, driven mostly by increased coal cargoes. Ton mile demand growth is expected to reach 1.2% in 2022 and 2.1% in 2023, while projected annual fleet growth will not surpass 0.75% in 2023. The Chinese economy has undoubtedly slowed down in the first half of the year. But since the government has kept its annual GDP growth target intact, aggressive infrastructure stimulus will be required in the domestic market. In fact, the Chinese government has reiterated its support for the real estate sector several times this year by implementing many measures such as the issuance of special bonds for infrastructure and construction projects and the direct purchase of large unfinished housing developments. We expect these measures to help maintain steel production at high levels, which will support increased iron ore imports in the second half of the year. In addition, weâre experiencing increased demand for thermal coal for power generation. The ongoing conflict between Ukraine and Russia and the sanctions that have been imposed have led to an increased ton mile demand for coal mainly from Europe. Before the war, the EU was importing around 35 million to 40 million tons of thermal coal from Russia, which now have been substituted from longer distance sources such as Australia, the U.S., Colombia and Indonesia. Finally, the incremental demand for iron ore is anticipated to be covered largely by Brazilian iron ore increasing further ton mile demand in the sector due to longer travel distances compared to Australian exports. Given the current daily export rate, Vale could surpass â Vale Brazil could surpass the export volumes of the second half of 2021. Considering all these demand developments, Capesize vessels are likely to improve in the following quarters. Moving on to vessel supply. The picture continues to be very encouraging. The limited ordering activity in the previous quarters has helped trimming the Capesize fleet growth to just 2.1% in 2022, while the order book, as a percentage of the active fleet, continues being the lowest in more than 20 years. Given the uncertainties around in compliance with future environmental regulations and the lack of shipyard capacity, I expect slow fleet growth to be an enduring feature of the market in the next 10 years. It is interesting to note that the first half of 2022, only saw orders for 10 newbuilding Capes being placed, which is the slowest pace of ordering seen in the past decade. Due to this healthy supply dynamics, we expect the Capesize market to follow an upward trajectory in the following years and Seanergy with all the operating leverage improvement and the ESD and scrubber investments is an advantageous position to benefit for future developments. Finally, by continuing to invest in the energy efficiency improvement of our vessels and based on the stronger relationship with our world-leading charterers, Iâm sure that Seanergy will continue to benefit from the Capesize uptrend in the following quarters. On that note, I would like to turn the call over to the operator and answer any questions you may have. Operator, please take the call.
Operator: Thank you. The first question has come from the line of Tate Sullivan from Maxim Group. Pleas ask your question. Your line is open.
Tate Sullivan: Hello, all. Thank you for taking my question. And Stamatis I figured Iâd start with the market commentary that you ended your presentation with, particularly given the decline in Capesize rates today too. I mean, can you comment on â you did previously in previous quarters comment on coal cargoes in your fleet versus iron ore cargoes and how much could the resilient demand for coal offset the potential for weaker demand for iron ore in the second half of the year, please?
Stamatis Tsantanis: Well, hi, Tate, Good morning.
Tate Sullivan: Good morning.
Stamatis Tsantanis: The thing here is that obviously, the Capesize rates have been quite disappointing. Nobody was expecting to see this kind of lows as we are experiencing today. That doesnât change our view on how bullish we are for the sector, in respect of demand and supply. So the weird thing here is that you have both healthy roots with iron ore and very healthy voyages with coal as well. So apparently, demand appears to be quite strong. I think the market drop is mostly sentiment driven and the fact that the price of bunkers is trying to find a certain level. But I think overall, it has been affected by the massive sell-off that we saw in the FSAs, which affects the physical market as well, together with the fact that there has been some sort of an equilibrium at these levels, which, again, in our opinion, is not justified and that we expect to see the market rising again very, very soon. So itâs going to bottom out very soon, and we expect to see an upward trend moving into the second half of Q3. I think that the procurement of coal from Europe and other countries on the basis of the energy crisis is going to absorb more and more tonnage. We have seen a lot of unwinding of ships from delays in various ports due to mostly good weather globally. So with the first time of disruption, we expect to see the market turning back up very aggressively. Thatâs our take on the market.
Tate Sullivan: Thank you, Stamatis. And you mentioned something about Vale as well. I mean, Vale slightly reduced their production guidance for this year earlier â a couple of weeks ago. But did you say they still, with that guidance, will have higher exports iron ore exports in the second half compared to the second half of â21, was that your comment?
Stamatis Tsantanis: Yes I think itâs slightly going to be higher. The overall exports from Brazil in the second half of the year, we estimate to be pretty much at the same levels like the second half of 2021. The thing here is that we have higher coal demand for the reasons that we all know, the Ukrainian â the Russian invasion of Ukraine and all that so â and the energy crisis. So we expect the market to turn higher in the very near future. So our take is that the market is going to recover very soon. I donât know whether itâs going to be in the next few weeks or maybe in September, we donât know, and I donât want to take a position on that. But certainly, and surely, we expect to see the market recovering very soon.
Tate Sullivan: Okay, thank you. And Stavros, did you mention in your prepared remarks and in the presentation, you have no balloon payments until â23. Did I hear that correctly?
Stavros Gyftakis: Hi Dave, yes, thatâs correct. No, we are addressing â we have addressed through the commitment letter that we received the last maturity, which is in December 2022 that of UniCredit. And then there is only one facility maturing at the end of next year, the sale and leaseback of the championship, which is based on the current dynamics on the fair market value of the ship and the projects outstanding of the facility, it will be a relatively comfortable exercise to refinance next year.
Tate Sullivan: Okay. Thank you very much.
Stamatis Tsantanis: Thank you, Tate.
Operator: Thank you. We are going to proceed to the next question. Please standby. We have the next question coming from Poe Fratt from Alliance Global Partners. Please go ahead. Your line is open.
Poe Fratt: Yes. Good morning Stamatis. Good morning Stavros or good afternoon. Just a quick question on the table that you have for the third quarter forward cover, it implies that the fixed rate, the two of the Patriotship and the Hellasship are going to be fixed â were fixed for the entire quarter and that you donât expect those to be re-delivered to you. Is that a fair assumption? And then what is your assumption for the fourth quarter on both of those because those rates are relatively high relative to the current spot market?
Stamatis Tsantanis: Yes, thatâs correct. Both vessels are currently fixed on voyages that extend potentially to the end of the â or close to the end of the third quarter, Poe. So, if these vessels get delivered, it will be after the third quarter. Now, concerning the fourth quarter, itâs anybodyâs guess whether this will be delivered. Mind you that both vessels scrubber-fitted and itâs developing into a 2 Tier market out there. So, scrubber-fitted ships are earning very decent premiums compared to non-scrubber. So, the rates might seem high compared to where the market stands now. But if you factor in also the scrubber premium, they are not that far away from where the market stands. So, all-in-all, I mean for the third quarter, if I were, I would include those vessels in my projections at the rate that we have them. And then in the fourth quarter, we will see whether we receive something from the charters on those.
Poe Fratt: Okay. Great. And then you have on the index-linked charters, you have 10 of those time charters with options to fix. And it looks like you fixed three of them for the full third quarter at a really healthy rate of close to $34,000 a day. Did you fix those beyond the third quarter into the fourth quarter or were those just exclusive to the third quarter?
Stavros Gyftakis: Only one vessel extends until the end of the year, until December and the rate there is $31,500 per day. So, the other two ships that were fixed close to in excess of $38,000 were fixed up until the end of September.
Poe Fratt: Okay. Great. And then I am trying to figure out a cash walk to the third quarter potential cash level. And I just wanted to make sure that I am looking at things in the proper way. In July, after the quarter closed, you invested $10 million in the preferred in the spin-off. You also had debt that was assumed by the spin-off of about $5 million. And then you had the premier â you have potentially the Premiership and the Fellowship refi that will â that refi, if it closes in the third quarter, will hit the balance sheet, but then you will have the debt repayment in the fourth quarter. Is there anything else I am missing as far as just the financing aspect for the third quarter?
Stavros Gyftakis: No, these are the â I mean the major liquidity events, I would say that are the ones that we mentioned.
Poe Fratt: Okay. And am I correct in assuming that the Premiership and Fellowship refi, there will be a timing issue as far as it will show â it will be done in the third quarter, but the debt wonât be repaid until the fourth quarter?
Stavros Gyftakis: Most probably, the two ships will be refinanced by the end of the third quarter. So, whether itâs a third quarter event or an early fourth quarter event, it remains to be seen depending on the documentation procedure with the bank. But itâs potentially as I said, itâs going to be a third quarter event.
Poe Fratt: Okay. And then looking at the spin-off, you invested $10 million in the preferred, essentially had capitalized the spin-off initially and then helped raise some capital to complete an acquisition. That capital of $10 million is locked up for at least a year. What should we think?
Stavros Gyftakis: Sorry, allow me to interrupt you. Itâs not locked for a year period. I mean this capital itâs redeemable within three months from issuance. So, potentially, I mean if United so decides, they could return the capital within three months from issuance.
Poe Fratt: Okay. It would be interesting to see where they get that capital, but okay. So, that begs the question, whatâs your additional appetite for helping the spin-off raise money as far as additional preferred? Have we seen the last of it? And then also, can you assure me that the management attention wonât be diluted on Seanergy that having another company â public company to run wonât dilute your efforts on Seanergy?
Stamatis Tsantanis: Hi Poe, this is Stamatis. Good morning from my side. First of all, I will ask â I will start with the last part of your question. There is absolutely no dilution effect. Seanergy and United has the proper management depth, especially Seanergy, as you know, has grown into something that we consider to be â I am not going to say mature, but it has come to a point where we have the proper management depth and the company goes on a very steady route and path. So, we donât anticipate any disruptions there. As far as United is concerned, the company recently completed an equity offering. So, it has sufficient capital for the current acquisitions as well as other acquisitions. So, it will not require additional capital from Seanergy, and itâs likely that itâs going to return capital to Seanergy in the very near future. Going back to Seanergy, we might look into some fleet replacement options in the coming months, which means disposing of all their assets and buying newer assets. So, we reduced the average age. But this is not going to affect the distribution to our shareholders or anything like that, and we might be talking about one, two ships for replacement of all the tonnage and thatâs about it. So, itâs going to continue in a very stable course of business operations.
Poe Fratt: Great. I didnât â I was asking about the fleet renewal or fleet â potential fleet M&A, but thatâs helpful. Last quarter, I asked what your optimal level is for the Capesize fleet and you pretty much, Stamatis said that, it was in the 20% range. Is that still the case? Is that sort of a target that we should be thinking about over the intermediate term?
Stamatis Tsantanis: Well, again, I donât anticipate to see any further acquisitions in the immediate future. But like I said, I mean by the end of the year, we might be buying one more ship and disposing of an older ship, but thatâs about it. I donât anticipate anything super aggressive in respect of fleet renewal until the end of the year.
Poe Fratt: Great. Thank you for your time.
Stamatis Tsantanis: Thank you, Poe. Have a great day.
Operator: We have no further questions at this time. I will now hand the conference back to you for closing remarks.
Stamatis Tsantanis: Okay. Once again, I would like to thank everyone for attending our earnings call today. Thanks very much and looking forward to the next call sometime end of October, beginning of November for our Q3. So, thanks everyone for attending. And Razia, you may disconnect the call. Thank you.
