Seanergy Maritime Holdings Corp. (SHIP) Earnings Call Transcript & Summary

Thank you for standing by, ladies and gentlemen, and welcome to the Seanergy Maritime conference call on the third quarter and 9 months 2020 financial results. We have with us Mr. Stamatios Tsantanis, Chairman and Chief Executive Officer; and Mr. Stavros Gyftakis, Chief Financial Officer of the company. [Operator Instructions] I must advise you that this conference is being recorded today. Forward-looking statements. Please be reminded that the company publicly released its financial results, which are available to download on the Seanergy website at seanergymaritime.com. If you do not have a copy of the press release, you may contact Capital Link at (212) 661-7566, and they will be happy to send it to you. Before turning the call over to Mr. Tsantanis, we would like to remind you that this conference call contains forward-looking statements as defined in the Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Exchange Act of 1934 as amended, concerning future events and the company's growth strategy and measures to implement such strategies. Words such as expects, intends, plans, believes, anticipates, hopes, estimates and variations of such words and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the company. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include, but are not limited to, competitive factors in the market in which the company operates, risks associated with operations outside the United States, change in rules and regulations applicable to the shipping industry and other risk factors included from time to time in the company's annual report on Form 20-F and other filings with the Securities and Exchange Commission, the SEC. The company's filings can be obtained free of charge on the SEC's website at www.sec.gov. The company expressly disclaims any obligations or undertaking to release publicly an update or revisions to any forward-looking statements contained herein to reflect any change in the company's expectations with respect thereto or any change in events, conditions or circumstance on which any statement is based. Now I will pass the floor to Mr. Tsantanis. Please go ahead, sir.

Thanks, Sharon. Good morning, everyone, and thank you for joining us today to discuss our results for the third quarter and 9-month period of 2020. First, I hope that everyone listening to our call is in good health during these difficult circumstances. I also want to make a special mention to thank our seafarers for their continued support and commitment in our fleet during these challenging times. In the third quarter of 2020, the global economy saw a fast recovery from the initial adverse shock of the COVID-19-related crash. The Chinese economy registered GDP growth of 4.9% in the quarter and continued to drive strong demand for seaborne transportation of raw materials. As a result, Capesize freight rates have jumped from a daily average rate of about $7,100 in the first half of the year to approximately $20,600 per day in the second half till now. The current rate stands at about $12,000 per day. The daily average TCE of our fleet for the third quarter of 2020 was $16,219, a significant improvement from $7,000 per day in the first 6 months of 2020 due to the fast recovery of the Capesize market after June. This is more than double, obviously. As regards to the fourth quarter of 2020 to date, our commercial performance tracks the BCI index, which has averaged at approximately $20,500 quarter-to-date. As the market has softened since the beginning of November, it would be fair to assume that the TCE for the quarter will end up at approximately $17,000 per day unless there are positive developments. Given the supply and demand fundamentals in the dry bulk industry, we are optimistic about the prospects of the Capesize market. Our strategic focus on employing most of our vessels under index-linked arrangements leads to capturing strong charter rates when market conditions are favorable. Regarding our capital structure, we have worked to strategically position Seanergy in the best possible way to benefit from future developments. The company's balance sheet is in the strongest position of the last 10 years with highlights as follows. We ended the third quarter with $33.8 million in cash, which is the highest ever cash balance reported since the relaunching of the company in 2015. Our secured debt was about $160 million, marking a 13% discount since the start of the year, i.e., a decrease of approximately $22.9 million. We bought an additional Capesize vessel that was acquired without any debt financing. Total shareholders' equity was approximately $86.5 million compared to $29.9 million at the end of 2019. This is almost 3x up. Based on the current strength of our balance sheet and the Capesize market outlook, I would like to state that we are excited about the prospects of our company. With this in mind, I would like to discuss the most important company developments in Q3 until now. On August 20, we completed our final public offering of shares and warrants. Net proceeds from the offering were approximately $25 million. In 2020, the total net proceeds from our capital raising activities amounted to about $72 million net. Currently, our total common shares outstanding are 68.3 million. Excluding the value of our ships and the cash flow from operations, our cash is currently at $0.50 per share. In July 2020, we completed the refinancing transaction of a loan facility secured by 2 of our Capesize ships. The original loan was initiated in September 2015, and we achieved a material discount with the legacy lender of approximately 20%. The new loan of $22.5 million was provided by EnTrust Global. In Q3, we recognized a $5.1 million gain in our financials following this refinancing. In continuation of the discussions with our senior lenders that were mentioned in our last earnings call, during the third quarter, we obtained approvals for the 2-year extension of maturity on one of our senior secured facilities that has an outstanding balance of $33.2 million and original maturity in December 2020. We also received approvals for covenant relaxations on another secured facility with maturity date in 2022. These agreements are subject to documentation, which has been temporarily postponed until we restructure our related party junior indebtedness discussed as follows. Jelco Delta Holdings is our single junior lender, which is also a related party entity. Jelco has provided extensions of the maturities of 2 facilities which fell due in June and September 2020 for a total amount of $11.9 million plus accrued interest. We have been in discussions for a comprehensive restructuring of their facilities, which takes into account the accommodations agreed by the senior secured lenders. However, our offer for consensual solution, which has been proportional where the concessions agreed with our senior lenders, has not been accepted by Jelco and the latest waiver period expired on 13th of November 2020. This has triggered cross-default provisions in the company's remaining credit facilities. Our senior lenders have expressed their support in the company, and we are servicing all our senior loan facilities, and we will, of course, continue doing so going forward. Our intention is to reach a solution which will be fair and equitable to all the stakeholders of the company. Before I pass the call to our CFO, I would like to update you about my announced stock purchases. As of today, I have bought 300,000 of Seanergy's common shares in accordance with a previously announced plan for open market purchases. As already stated, I have strong confidence in the company and its fundamentals. In addition, as announced, we do not intend to initiate any public equity offerings at least until March 2021 nor implement any reverse stock splits prior to that date. I will now pass the call to our CFO, Stavros Gyftakis, who is going to discuss our financial results. Go ahead, Stavros.

Thanks, Stamatios. Good morning, everyone. I hope that you and your families are staying safe and healthy. Our operating performance marked a clear improvement in the third quarter of the year when compared to that of the first half, aided by the strong recovery of the Capesize market. It is very promising to see that both steel and energy demand in China stage a very strong and fast recovery during a period of extreme uncertainty, such as the one seen through the first months of the pandemic. In terms of our financial performance, I specifically refer you to the earnings press release issued earlier today, which details our financial results and vessel performance. During the third quarter, net operating revenues, defined as revenues after deducting own voyage expenses and commissions, amounted to $15.8 million, reduced by 1% from $15.9 million in the same quarter of 2019. The marginal reduction was a result of a lower daily time charter equivalent, which was partly offset by more operating days during the quarter. Indeed, our fleet recorded 973 revenue-generating days in the third quarter of 2020 when compared to only 790 operating days in the third quarter of 2019, during which 2 vessels [ under 2 plate ] scrubber installation and 1 vessel [ under 2 peak schedule ] special survey. Furthermore, the addition of the Goodship since August this year also increased fleet days in the current quarter. As in terms of vessels daily earnings, our daily time charter equivalent in the third quarter of 2020 was $16,219 or 19% lower than the $20,143 time charter equivalent achieved in the same quarter of 2019. This was mainly due to the disproportional drop by 29% in the average earnings of the Baltic Capesize Index during the period. A [ decisive ] factor for our improved commercial performance was the deployment of 7 vessels, all index-linked time charters during the third quarter of 2020, while our revenue in the third quarter of 2019 was mainly generated through voyage charters. As the BCI rose very abruptly in the third quarter, it was straightforward for our fleet to capture this positive move without being materially affected by the timing of any particular voyage fixtures. Moving on to vessel operating expenses. This amounted to $6.4 million in the third quarter of 2020 as compared to $4.8 million in the third quarter of 2019. The increase is attributed to the increase in operating days due to the addition of the Goodship to our fleet as well as the increase in daily operating expenses by approximately 14% compared to the same quarter of last year. Part of the increase was due to maintenance expenses and crew training and familiarization expenses related to the scrubber equipment onboard 6 of our vessels. Perhaps more importantly, COVID has also had and continues to have a significant impact on the vessel OpEx. Crew changes have been costing more than normal due to extended hotel stays for our seafarers, COVID testing and increased travel costs. In light of these elevated costs, it should be understood that owing to the travel restrictions and quarantine measures, a large number of seafarers have been left stranded on boat vessels all over the world. This situation has been dragging on for months, and it is our company's priority [ to help our ] seafarers return home. Turning to financial expenses. We recorded interest and finance cost of $5.3 million in the third quarter of 2020 as compared to $6.1 million in the same quarter of 2019, aided by lower interest rate. On a cash interest basis, interest expenses were roughly equal to the same quarter last year and amounted to about $3.5 million. This is because the cash interest on the related party indebtedness for 2019 was settled in shares. EBITDA for the third quarter of 2020 was $12.7 million as compared to $9.8 million in the third quarter of 2019, while net income was equal to $3.6 million compared to net income of $0.7 million in the same quarter of 2019. The EBITDA and net income figure includes the refinancing gain that was recorded in the third quarter of 2020 following the refinancing of one of our senior facilities at a discount. The resulting reduction in our overall debt facilitates a healthier balance sheet going forward. Moving on to discuss the 9-month results. Net operating revenue was equal to 21 -- to $28.1 million compared to $30.7 million in the corresponding 9 month period of 2019. Daily time charter equivalent was $10,267, down from approximately $12,000 in the first 9 months of 2019. I would like to point out that the time charter equivalent achieved over the first 6 months of 2020 amounted to only $7,000 per day before improving considerably to $16,200 in the third quarter. We are optimistic that 2021 will not be marked by black swan events similar to those seen in 2019 and 2020. And therefore, we expect the earnings environment to be less volatile. Operating expenses increased by 16% in total during the 9-month period ending September 30, 2020, mainly due to the issues discussed earlier related to the scrubber equipment and the COVID-19 outbreak. While as reported in previous updates in the first quarter of this year, we incurred additional insurance expenses having to do with the release premiums on certain of our [ covers ]. Having said this, we believe that operating expenses are more accurately compared over a 12-month period by considering all the expenses that our vessels have incurred over a full year of operation. EBITDA in the 9-month period of 2020 was equal to $11.6 million as compared to $11.9 million in the 9-month period of 2019, a slight decrease of 2.5%. Net loss for the first 9 months of 2020 was $16 million compared to net loss of $14.8 million in 2019, mainly due to the adverse market conditions seen in the first 6 months of 2020. Regarding our balance sheet, as of September 30, 2020, we ended the quarter with $33.8 million in cash and cash equivalents, and shareholders' equity was equal to $86.5 million, up from $14.6 million and $29.9 million, respectively, at the end of 2019. Following the capital raising activities that took place in the second and third quarters of the year, our trade credit position has improved by $11.2 million since the end of 2019, attesting to the improvement in our overall financial health. Senior secured debt was reduced by approximately $23 million from $183 million to $160 million or $14.5 million per vessel, which is deemed to be sustainable considering the average age of our fleet. Considering our current cash reserves, cash per fleet vessel amounts to approximately $3.1 million, one of the highest per vessel cash position amongst our peers. Moving on, I'd like to focus on the measures aimed at enhancing and preserving liquidity. During the third quarter of 2020, Seanergy concluded an underwritten public offering that resulted in net proceeds of approximately $25 million when including the partial exercise of the underwriters' overallotment option. The increase in equity capital has improved the debt servicing capacity of the company, and therefore has proven to be instrumental in facilitating discussions with senior lenders. At the same time, the acquisition of one more high-quality Capesize vessel using equity capital only has improved both our operational scale and cash-generating activity while reducing the average breakeven rate of the fleet. Following this transaction, Seanergy has established a significant liquidity runway whereby even if market conditions fail to improve as expected, the company will still be able to operate at least until the end of 2022 without requiring any injection of equity capital. At this point, I would like to provide some specific updates on our borrowing activities. As a reminder to our listeners, since the start of the year, we have engaged in discussions with our senior lenders. The aim has always been to address upcoming maturities while maintaining adequate through-the-cycle liquidity during a difficult market environment. These discussions have been quite fruitful so far, and we have managed to address all maturities falling within 2020 while improving the terms of our borrowings in many cases. In addition to the previously announced Alpha Bank extensions and the refinancing of the HCOB facility with an aggregate outstanding balance of approximately $60 million, during the third quarter, the company obtained credit committee approval for the 2-year extension of one of its senior secured facilities that had an original maturity date in December 2020 and an outstanding balance of $33.2 million. Additionally, we have obtained approvals from debt covenants of several facilities that will enable Seanergy to execute its business plan effectively over the next years. These approvals are subject to definitive documentation. While I'm particularly happy to note that once the documentation has been completed, there will be no senior loans maturing before the fourth quarter of 2022, which enhances our ability to deal with ongoing market uncertainty. In summary, I would like to stress once more the importance of maintaining our financial flexibility in the context of market developments. Overall, despite the favorable supply and demand fundamentals that have driven the recovery out of the market bottom of 2016 and have led to 3 consecutive years of improvement in the Capesize market, the past 3 years have also illustrated the high level of volatility inherent to the dry bulk market through 3 separate distinct events. Firstly, the initiation of trade wars by the Trump administration in 2018 followed by the major Vale dam disaster in 2019 and more recently, the outbreak of the global pandemic and the resulting lockdowns and shutdown of the economies around the world. In this context, increased liquidity and financial flexibility will play a key role in allowing Seanergy to capitalize on a sustainable recovery of the Capesize market regardless of volatility. Lastly, and having addressed the most important issues related to our senior debt facilities in mutually beneficial ways and taking to account the interest of all stakeholders of the company, our focus is now placed squarely upon finding a harmonious, amicable arrangement as regards to maturities of our junior loans provided by Jelco, a related party. These maturities are fully [ viewed ] during what has proved to be a historically volatile period of gross economic and political uncertainty. Yet, we are aiming finding mutually beneficial solution that will allow all parties to realize the value of their investment in Seanergy in the long run. [ Since any ] related-party loans and promissory notes represent junior or, in some cases, unsecured liabilities of the company and given that we have agreed terms with our senior secured lenders [ or debt ] maturities, the right solution with related-party debt should be only a matter of time. Having said this, as disclosed in our earnings release, the last payment provided by Jelco has expired on Friday, the 13th of November. Based on the frequent dialogue with our senior lenders, we are confident as well continued support and that they will not act on the cross-default provisions. So all our senior lenders have been very supportive of the business, but there is only this one junior creditor, which is not a financial institution, with whom we have not yet reached an agreement. Otherwise, it's all business as usual, and we hope to reach an agreement with our single junior credit soon. This concludes my review. I would now turn the call back to our CEO, who will discuss the market and industry fundamentals. Stamatios?

Thank you, Stavros. As mentioned earlier today, we're very optimistic about the long-term prospects of the Capesize sector. The market has improved in each year from 2017 until 2019, has been able to stage a very fast recovery from the COVID-19-induced crisis so far in 2020. As reminded by Stavros earlier, the last 3 years have been marked by various extraordinary negative events: the trade wars initiated by President Trump between U.S. and China in the first quarter of 2018, the major mining disaster that occurred in Brazil for the first quarter of 2019 and the emergence of the COVID pandemic in the first quarter of 2020. Each had a severe impact in dry bulk trade. In this regard, it's very encouraging to see the resilience of the market, which has been very fast to bounce back from these black swan events and achieving higher average levels every consecutive year. All indications point to the fact that the market will trade at sustainably higher levels as soon as the effect of these one-off events dissipates. As regards to market developments during the current year, China imports of raw materials initially crashed in the first quarter of 2020 due to the coronavirus effect before jumping back in the period from June until September in order to compensate for the initial decline. We are optimistic that the global economic stimuli and the announced infrastructure investments amounting to trillions of U.S. dollars will help the market rise to even higher levels. The Capesize market is the first to respond positively due to the resilience in steel and iron ore demand and the increasing high-quality ore supply from Brazil, which is expected to reach 400 million tonnes over the next 3 years, up from about 300 million to 320 million tonnes this year. As provided by Braemar ACM research, fresh economic data for October shows continued strength in Chinese industry as stimulus continues to provide support for the manufacturing and construction sectors. The official measure for industrial production grew 6.9% year-on-year in October as the Chinese economy continues to recover. Steel production has outpaced 2019 levels over the first 10 months of the year by 5.5%, totaling 875 million tonnes. In my view, these figures provide even more support to the positive story of the Capesize segment that has proven resilient even through such unprecedented circumstances. Looking towards the next years in more detail, in 2021 and 2022, the volume of trade is expected to return to an average growth of about 3%. As regards to fleet growth, the Capesize order book is the lowest -- is at the lowest levels since 2003. New building orders so far in 2020 have amounted to about 2.5 million deadweight tons, a fraction compared to the full year figures of 20.7 million tons in 2018 and 14.2 million tons in 2019. It's a very significant reduction which will likely lead to potential shortage of tonnage over the coming years, especially as the older ships become harder to operate. Given the obscure outlook of new environmental regulations and until the IMO provides more guidance on the shape and form of new restrictions that are going to be introduced in 2030, it is unlikely to see a surge in new building vessel activity. In addition, major dry bulk charterers do not provide long-period contracts, which makes it even more difficult for new ships. Finally, the reluctance of traditional banks to finance vessels that do not comply to strict and highly uncertain regulations and without period employment is adding another layer of difficulty to anyone considering new buildings. Seanergy's emphasis on the improvement of the fleet's environmental efficiency and the established long-term relationships with prominent charterers ensure our fleet's continued commercial success in this environment. Given the material improvement of our balance sheet in the past 3 quarters, we expect to be in advantageous position for future market developments. On that note, I would like to turn the call over to the operator and answer any questions you may have. So Sharon, please take the call.

[Operator Instructions] We will now take our first question.

This is Tate Sullivan from Maxim Group. My first question, can you comment -- are you -- after purchasing a ship in 3Q '20 and with your cash at the end of the quarter and then considering the Jelco negotiations, are you happy with your ship mix? And if so, can you comment on the near-term uses of cash and in the longer term, please? A couple of questions in there.

Of course. Tate, I hope you're well. Well, basically, we raised capital in 2020, and that capital needed to be allocated in a certain manner that we thought and that we were directed to, which is fair for all the shareholders of the company. With the cash that we raised, we delevered the company significantly. We bought this unlevered ship. And now we have a significant cash cushion to, as Stavros said, to deal with any potential future uncertainty that may come. Now that ship alone, we thought it was one of the best moves we have done because we agreed to acquire that ship in the end of the second quarter at one of the lowest historical prices ever for this type of a ship. We bought it for $11.4 million. Its first voyage alone, the ship is going to make a net cash of about 1.7 million, 1.8 million tons. So you get in about 3, 3.5 months the 10% return on your capital or the investment. So it makes great sense to buy that ship. And on a debt-free basis, it contributes a lot to the cash flow of the company. So we feel great about it, and we wish we had the capacity to do additional similar purchases.

Oh, excuse me, you do have the capacity to make similar purchases? Is that...