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

Ladies and gentlemen, thank you for standing by, and welcome to Seanergy Maritime Holdings Corp. First Quarter 2022 Financial Call. [Operator Instructions] Many of the remarks today contain forward-looking statements based on current expectations. These statements may often be identified with words such as expect, anticipate, believe or similar indications of future expectations. Although such forward-looking statements are considered to be reasonable by the company cannot assure you that any forward-looking statements will prove to be correct. These forward-looking statements are subject to known and unknown risks and uncertainties and other factors, many of which are beyond the company's ability to control or predict. Please refer to the company's annual report on Form 20-F and other filings with the Securities and Exchange Commission, which discuss many of these risks and uncertainties. Should one or more of these risks or uncertainties materialize or should underlying assumptions or estimates prove to be incorrect, actual results may vary materially from those the company expresses today. In light of uncertainties inherent in any forward-looking statements, listeners are cautioned to not place undue reliance on these statements. The company undertakes no obligation to revise or update any forward-looking statements whether as a result of new information or future events. In the earnings call today, the company may refer to non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income and TCE rate. For a full reconciliation of the non-GAAP measures to GAAP measures, please see the company's earnings release posted to the new section of their website earlier today. I would now like to hand the conference over to your speaker today, Stamatios Tsantanis. Please go ahead.

Hello, everyone, and welcome to our conference call. Today, we are presenting the financial figures for the first quarter of 2022, and we're announcing a cash dividend for a second consecutive quarter. Following an impressive 2021 performance, Seanergy achieved its strongest first quarter results of its recent history despite the expected seasonal slowdown in the Capesize market. This was attributable to the geopolitical uncertainties caused by the war in Ukraine and the COVID-related lockdowns in China. Overall, our outlook for the Capesize market remains very optimistic with strong expectations for the remainder of the year, with the underlying futures currently trading at levels exceeding $30,000 a day. Moving on to the first quarter highlights. Adjusted net income was significantly boosted year-on-year, reaching $7.7 million versus a marginally positive result in the first quarter of 2021. Despite the seasonal slack in the Capesize market, our fleet achieved a daily time charter equivalent of $19,400 a day, which is 19% higher compared to Q1 2021 and 31% higher than the average of the daily Baltic Capesize Index in the same period, which was equal to about $14,700. This is the highest first quarter TCE achieved by Seanergy since 2009. Our hedging activities over the past quarters were, therefore, successful in mitigating the negative effects of dry bulk seasonality. Overall, I'm pleased with our commercial performance, and I'm happy to see that the Capesize market has since risen quite strongly. For the second quarter of 2022, we have fixed approximately 76% of our fleet days at an estimated TCE of $22,750. At the current FFA average for the remainder of the year, our full year EBITDA would exceed $101 million as our CFO will explain shortly. All of our fleet operation period employment with some of the world's largest dry bulk charterers and 15 of our 17 vessels are employed on-time charters linked to the Baltic Capesize Index. This strategy ensures a very high fleet utilization with minimal working capital requirements, while it allows our performance to track the Capesize Index closely as charter rates rise. At the same time, our remaining 2 units are employed on fixed-rate time charters at daily levels exceeding $30,000 per day. Finally, it is worth reminding that the majority of our agreements allow us to convert daily earnings from floating to fixed rates, which we have used numerous times to hedge our downside risk. Meanwhile, with regard to our initiatives on the environmental and energy efficiency front, we also continued the relevant upgrades of our vessels in many cases in cooperation with the charters. During this quarter, we completed the installation of ballast water treatment systems on all of our vessels, while we continued adding energy-saving devices and artificial intelligence monitoring systems. This provides further future visibility as to the utilization of our vessels and ensures competitiveness of our fleet in the context of fast changing environmental regulations. We have also continued the testing of biofuels on our Capesizes with 2 of our charters and the involvement of a major mining company. Regarding the finance front, in Q1, we continued with the optimization of our capital structure by refinancing a legacy bank facility through a $21.3 million sale and leaseback transaction with a prominent Japanese bank, a structure that is more cost efficient and provides also considerable financial flexibility. In addition, we continued our shareholder reward program. We proceeded with $10 million of -- $10 million of additional buybacks of the remaining convertible note in Q1, eliminating the potential dilution while reducing further our financial leverage and interest cost. This was a continuation of our repurchase plan that was initiated in 2021 and the total repurchases of shares, convertible notes and warrants has amounted to $26.6 million within the last 6 months. Another important initiative is our dividend with another $0.025 payable in early July. Upon this payment, we will have rewarded our shareholders with a cash distribution of $0.075 per share, leading to an annualized yield of about 12.5% based on the recent closing price of our shares. I am confident that such capital returns are sustainable, and we will be able to continue rewarding our shareholders in the following quarters. Our CFO, Stavros Gyftakis will offer more details on our financial performance and it is now time to pass the call to him. I will come back at the end of the call for the market update shortly. So Stavros, Please go ahead.

Thank you, Stamatios. Let me first welcome everyone to our first quarter earnings call for 2022. We will start by reviewing the main highlights of our financial statements. In the first quarter, we saw the usual seasonal slowdown in the dry bulk and more specifically, the Capesize market affecting our results, but our performance was still much improved compared to the first quarter of the previous year. Net vessel revenue was equal to $29.7 million, marking an increase of 46% from the fourth quarter of 2021. As mentioned by Stamatios earlier, our daily time charter equivalent for the quarter was $19,400, increased by 19% when compared to $16,200 for the first quarter of 2021. Our freight hedging strategy has indeed paid off as our first quarter TCE exceeded the average Baltic Capesize Index by a considerable margin. Adjusted EBITDA in the first quarter was approximately $16.8 million, up from $7.9 million in the same quarter of 2021, and net income for the quarter was $3.7 million compared to a net loss of $1.3 million in the same quarter last year. During the quarter, we recorded a one-time non-cash loss associated with the buyback of the convertible note and the refinancing of the Amsterdam Trade Bank facility. Adjusted for this loss and other non-cash expenses, net income for the quarter was equal to $7.7 million, resulting in non-GAAP EPS of $0.04. The year-over-year percentage increase in adjusted EBITDA of about 113% over a 19% increase in our TCE, illustrates once again our company's operating leverage. At the current FFA curve for the remainder of the year, I would expect to see full year 2022 EBITDA of about $100 million, an improvement of 28% compared to 2021. Furthermore, the considerable reduction in finance expenses would result in an even larger percentage increase in our net income, although we are mindful of the increasing trend of the LIBOR. Average daily operating expenses, excluding pre-delivery expenses, were $6,444, a sequential improvement from $7,184 in the fourth quarter of last year. While it is still too early in the year to offer an assessment on the direction of our daily operating expenses, they continue to be negatively affected by the COVID-19 pandemic, which affects both crude related expenses and forwarding costs and the rise in raw material prices. We are hopeful that in the current year, operating costs can plateau at the level seen in 2021. Moving on to our debt and financial expenses. We have managed to continue reducing this in the first quarter of 2022. Focusing on the cash interest expense, in the first quarter of the year, the company incurred approximately $2.2 million of cash interest and finance costs. The respective expense was $2.9 million last quarter and $2.7 million in the first quarter of 2021. Bringing to the picture the increase of our fleet, the interest expense per operating day in the first quarter of 2022 declined to approximately $1,500 from $2,000 last year and $2,900 in the first quarter of 2021. All these reflect our constant efforts to further improve our position at this front, and we expect the positive effect to be even more apparent in the coming quarters. Regarding the debt on our balance sheet, the total debt outstanding per vessel has been decreasing consistently over the past 3 years, a trend that continued in the first quarter of 2022. Our loan-to-value has reached 43%, more than halving since the end of 2020. The total debt outstanding, including convertible notes, was approximately $226 million as of the end of the first quarter on a fleet of 17 vessels with a total scrap value of approximately $275 million. This compares with $173 million in the first quarter of the previous year on a fleet of just 11 vessels with a total scrap value of $177 million adjusted always for today's scrap prices. Overall, total debt outstanding per vessel was about $13.3 million as of the end of the first quarter of 2022 compared to $15.7 million at the end of the first quarter of 2021. All junior debt has now been eliminated, while as mentioned earlier, $10 million buyback of convertible notes was completed during this quarter. Furthermore, Seanergy has cash and cash equivalents of approximately $39 million at the end of the first quarter compared to about $47 million in the previous quarter. The reduction in our cash balance was mainly due to the convertible notes repayment that took place within the quarter. Now regarding the market value of our vessels, this has increased approximately $730 million as of March 31, 2022. On that basis, our corporate level is estimated at approximately 40%. Total book value of shareholders' equity as declined marginally to $231 million compared to $244 million at the end of the fourth quarter of last year, with a decrease being mainly attributed to the adoption of a new accounting treatment on the company's remaining convertible note. It is encouraging to see the steady rise in vessel values despite the spot market volatility seen in the first quarter of 2022. The expansion of our fleet over the past year has been accompanied by an improvement of leverage metrics across the board, which makes us confident about our ability to continue with our shareholder reward policies. Moving on to our recent financing transactions. We have now completed the strategic $21.3 million refinancing of a previous loan facility that was originally due in the fourth quarter of the year secured by the partnership. Additionally, we also prepared the last remaining junior indebtedness of $1.85 million. The new financing provided by prominent Japanese bank is priced more competitively and helped us expand our strong footing in the Asian ship-financing market. As regards now to the $22.4 million balloon payment that is due in December of 2022, I remain more than confident that it will be refinanced in a seamless and timely manner. As a matter of fact, we are already in close discussions with existing and prospective lenders while keen on proceeding with this transaction. However, our attempt to optimize further a capital structure is not limited to this facility. We are continuously discussing with international financing providers, opportunities that will allow us to reduce our interest expenses, expand the maturities of our facilities and provide the liquidity for our future endeavors. This concludes my review. I would now turn the call back to Stamatios, who will discuss the market and industry fundamentals. Stamatios?

Thank you, Stavros. As mentioned in my opening remarks, the first quarter of 2022 went through its usual seasonal lows. The average level of the Baltic Capesize Index for Q1 was approximately $14,700, with reaching a bottom of $5,800 per day by late January before recovering to about $23,400 in March. The key drivers behind the weaker charter rates were the global instability of the war in Ukraine, the seasonal reduction in Brazilian iron ore trade and the slowdown in China from the new COVID lockdowns. Despite the volatility, Q1 rates were much higher than the 10-year average of first quarter performance, which makes us optimistic about the rest of the year. In fact, according to Clarksons Research, for 2022 and 2023, we expect growth in dry bulk tonne mile to be about 1.4% and 1.9%, respectively, against projected fleet growth that is unlikely to go above 2% until 2024. We expect a slow vessel supply and new regulation starting in 2023 to continue to underpin a strong dry bulk market over the next years. More specifically, in Q1, Vale exported only 64 million tonne of iron ore, just 19% to 20% of its annual target. This sets up tremendous potential for the following quarters since Vale has set its production target for 2022 at a range of to 320 million tonnes to 335 million tonnes, and the required export rate for the rest of the year is going to generate considerably higher vessel demand. In China, we are happy to see the beginning of the COVID restriction easing and the normalization in steel production since the lowest point in February. As the country reopens fully from the COVID induced lockdowns, the decision of the local authorities to introduce a series of fresh infrastructure stimulus measures is expected to be particularly beneficial for iron ore and coal demand. In addition, seaborne coal trade has also been very important in vessel demand this year, and we are optimistic that this continue to support tonne-mile increases. According to Clarksons Research, 2022 coal trade tonne miles are projected to rise by 3.1%, a direct implication of the Ukraine and Russia conflict. Before this conflict, the EU was importing approximately 15 million tonnes of coal annually from Russia. These cargoes are being rerouted from sources of greater distances, limiting the available tonnage at sea, which squeezes vessel supply further. Apart from Europe, demand for both coking and thermal coal has been strong across the board in most regions of the world, which we see as an important factor in shaping demand in the Capesize sector outside the regular iron ore exports out of Brazil and Australia. Moving on to vessel supply, the picture continues to be very encouraging as well. The limited ordering activity in the previous quarters has helped in trimming the Capesize fleet growth to just 1.8% in 2022, while the order book as a percentage of active fleet continues being the lowest in more than 20 years. Given the uncertainty surrounding compliance with future environmental restrictions and the lack of shipyard capacity, I expect slow fleet growth to be an enduring feature of the market in the next years. The healthy demand and supply dynamics are reflected in the futures curve, and we expect the market to follow an upward trajectory in the following quarters at rates even better than 2021. Our efforts to place Seanergy in a position to be able to benefit from the current super cycle has started to materialize since the previous year. Finally, by continuing to invest in the energy efficiency improvement of our vessels. And based on the strong relationship with our clients, world-leading charters, I'm sure that Seanergy will continue to benefit from the remarkable uptrend of the dry bulk market in the coming 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 Instructions] The first question is from Magnus Fyhr from H.C. Wainwright.

Just you mentioned some positive developments in your key -- some of your key markets, I mean, Brazilian iron ore exports as well as a pickup in China. Where do you see the biggest risk going forward as far as derailing the dry bulk market recovery or continued strength in the market?

Magnus, thanks for the question. Well, obviously, there are risks when you have wars and conflicts and inflationary pressures and all that. There are risks that we have to take into consideration on a daily basis. Let's start with the conflict in Ukraine. It's tiring to say that every time there is some sort of a global conflict where the normalized routes are being disrupted, then products and raw materials tend to come from longer distances. So that has helped our trade a lot. And we expect the emergence of coal to be positive for dry bulk as well. I mean if you ask me like a couple of months ago with the COVID restrictions in China and all that, I would tell you that a major Chinese slowdown would be the biggest risk. However, on the contrary, we see that China is going back to the old infrastructure playbook, and they have funded the regional governments a substantial amount of infrastructure investments throughout the country. So that is positive as well. Aside from that, I cannot really think of anything that has not either been resolved or we have a clear outlook for the future within this year as to how it's going to play out.

As far as, I guess, the third one, the Brazilian iron ore exports has been kind of the Achilles heel here, but it looks like Vale is picking up, trying to reach their estimated guidance. What are you seeing there now as far as pickup during 2Q?

Well, we are seeing Vale more and more into the market. So it's slowly, slowly casting up. They have to start exporting about 20% more in the second half of the year as compared to the first half of the year in order to meet their annual targets. I am confident that they will be meeting the lower -- the lowest part of the range they have given as a guidance. So I'm optimistic that the volumes will catch up. We see Vale pretty much in the market on a daily basis. And that's a game that they play very, very well, trying to fix from 2 months ahead and backwards. So we are seeing volumes picking up slowly, slowly. So there will be additional tonnage being absorbed in the Brazilian trade.

All right. Very good. So with all this volatility in the market, I mean, the Capesize market was down quite a bit last week after recovering nicely. What is Seanergy doing as far as your chartering strategy for the second half of the year. Are you guys going to save spot? Or are there opportunities to fix vessels at attractive terms?

Well, we have already started to fix some ships for June and the remainder of the year. So we are being active on that. We know that the market can reach and exceed $50,000 a day sometime in Q3, but we don't want to take the risk for the whole fleet. So we have been fixing ships. Right now, the average for the second half of the year is in, let's say, $33,000, $34,000, which is massively profitable for us. We will be continuously fixing from floating to fix some ships in the next few weeks or months. So we are on top of that.

We have the next question from Tate Sullivan from Maxim Group.

In the prepared remarks, Stavros, I think I heard you say a level of $100 million EBITDA for 2022. Is that I hear that right? And can you review the rate outlook for that level of EBITDA, please?

Tate, good to hear from you. Yes, yes. And that was under the assumption that the rates going forward will develop in line with the levels -- the current levels of the FFAs, which are around $32,000 for the remainder of the year.

Okay. Great. And on that point, for the 2Q '22 TCE guidance is the level of $24,569 based on if you convert it all to FFAs today? Is that essentially what that is assuming?

No. This assumes, first of all, the existing conversions that we have, it assumes also the 2 vessels that are running on fixed rates, and it assumes that for the remaining ships for June for days that have not been invoiced yet, they will average at around $32,000.

Okay. Great. And one more for me, please. Just can you review the -- you mentioned a change in accounting in the new convertible note accounting treatment. And just specifically to diluted shares outstanding, the decrease from 205 million to 177 million. So with this new treatment, is that -- will that be consistent level of diluted shares from 177 million?

The region of the convertible has to do with the fact that part of the convertible note that was recorded under equity has moved down the liabilities, and that's why you will see a slightly marginally higher liabilities on the convertible side and our equity shareholders' equity having been reduced marginally that basically, we've moved part of the convertible from the equity to the liability side. Now the fact that the notes that are coming out of the convertible have not been included under the diluted number of shares is that's based on the accounting group on the fact that based on the movement of the price of the shares, this have not been regarded as dilutive, the instrument has not been regarded as dilutive should the share price increase and on average be higher than the strike price of the convertible, then this will be included again in the calculation.

We have the next question from Poe Fratt from Alliance Global.

Can you talk about the second half of the -- when you look at what's been fixed, you said that for the second half, you have some days fixed at 33,000 to 34,000 a day. Can you just maybe put the other side of the equation on them and say, how many of the second half days are fixed right now?

Yes. Well, basically, we have fixed 4 ships that is excluding the 2 that we already have on fixed time charter rates, and that is ranging between 28,000 and 39,000. So it's a big range, if you want to say, an average around 34,000 on these 4 ships. That's pretty much it is. So these are the 4 ships we have converted from floating to fixed for the second half of the year plus the other 2 that we're running on a fixed rate. We will continuously look into the market for opportunities to fix some more in the high-30s when this opportunity arises again.

And Stamatios, I know the 2 are fixed with the Patriotship and the Worldship, doesn't the Patriotship time charter expire at the end of this month?

Well, yes, it does. But we have an optional period. It doesn't mean -- this is the initial period of the ship. So we don't anticipate for that CP to end prior to the end of the year. And in any case, we are in discussions with all of our charters for whatever is expanding throughout the year to renew at same or better terms. So like we have done very successfully on the followship, which we renewed for another 2 years with Anglo, and we have improved its BCI rating by 2.5% as a benefit. So we are working with our chapters to fix the ships that are being expiring this year, and we anticipate to have better numbers on these renewals.

Okay. Great. And I want to thank you for adding at least the summary cash flow statement that's included in the press release. I really appreciate that. Can we just talk about your fleet profile right now and sort of what strategy is going forward. There were some, I believe, some broker reports out there that tied an acquisition to you. Can you just talk about what's going on with the S&P front?

Well, the company will continue to have a balanced deployment of its capital. First and foremost, it's our shareholder rewards like our convertible debt repurchases that we have executed since the beginning of the year, our dividend payments and if the opportunity comes across that we believe it's going to be accretive for our shareholders without diluting our shareholders, we will be looking into accretive acquisition opportunities. So all 3 things are, for us, represent a balanced capital deployment strategy. So we will continue on this plan. We cannot, let's say, confirm any rumor right now. We will announce when and if there is a certain deal that is going to take place. But again, that is assured that we will continue our fully balanced capital deployment top line.

And then just on the converts, you have about $10 million of the converts, my understanding those either mature or you expect to retire those by the end of this year. Is that a good -- is that a good working assumption?

Probably. We have not had any discussions with the holder of the notes. We might have 2 repayment by the end of the year or we might extend their tenure for a little bit more. So depending on the cash flow, we will revisit the matter end of Q3, beginning of Q4. It's a bit premature to have the discussion now. But whatever the outcome is surely going to be beneficial for our shareholders.

Okay. And then on the OpEx side, can you expect any change from the first quarter OpEx looking out over the rest of the year?

Well, I think increases in OpEx, in operating expenses are pretty dominant throughout all the reporting companies. The reason is multi-faceted. One is because all these years of COVID, we have had accumulation of a number of expenses that now are materializing. And basically, we have the crew change costs that become more and more difficult, not just because of COVID, but because of the Ukrainian -- the Russian invasion in Ukraine. So we have all these factors together. I believe that we're going to be stable at these levels that we announced in Q1. So there's not going to be a material increase. And we also had a lot of expenses associated with dry docks and all the other stuff that we went through the last few months. So I would say that the guidance of Q1, I mean, the levels of Q1, there are numbers that you can pretty much depend on.

We have another question from the line of Tate Sullivan from Maxim Group.

Stamatios, following up on your comments on Vale production. So it sounds like you've already seen them selling some of their production into the market post the first quarter. I mean they do have to play catch up with their guidance. I mean, is that a meaningful risk, let's say, they fall short of their guidance? And historically, how much of the impact on rates can that have excluding an impact like a flooding event or so forth?

Okay. So let's think of the worst case scenario. The worst case scenario is pretty much what we have been experiencing so far that is the first 5 months of the year. So the market year-to-date has been in the region of over, what, $17,000 a day, $18,000 a day. And that is with Vale really exporting its lowest volumes over the last 5 or more years. So that's the absolute worst case scenario that we see because coal trade is pretty strong, and we expect that to pick up a lot. So assuming that Vale remains at this super low levels and they missed the guidance by, let's say, 30% because this is what we're talking about now or 25%, then what it means that the market is going to have a floor at the current levels, which, in my opinion, is a very, very unlikely scenario. If it starts to catch up, then the market only has upside from now, whether that upside for the remaining of the year, it's going to be $50,000 or $60,000, it's going to be $30,000 or even $25,000. We're very happy with all these scenarios. So in any case, we're way above breakeven, and we're way profitable in any case.

Great. And then a different topic on the coal trade. I mean has your percentage of cargo increased meaningfully with coal versus iron ore? And it was that the case in the first quarter, I imagine.

Yes. Yes, it has changed substantially. We see European imports of coal increased a lot from longer distances. As I mentioned previously in my script, Europe is importing 50 million tonnes of coal from Russia. And now this has started to be diverted for much longer distances. At the same time, Russia is exporting these lost cargoes to further businesses like China. So that has helped tonne mile a lot. We are not seeing the full effect of that yet because there are a lot of inventories here and there in Europe and not so much in India and in other places where they're dangerously low. But we expect that to accumulate and pick up in the next few months. So we expect coal as we turn into the second half of the year in order to procure for the winter of '22, '23 to pick up a lot.

There are no further question. I will now hand back the conference to Mr. Tsantanis.

Well, thanks very much for attending our call today. So Bert, thank you for being a great operator. You may disconnect your lines. Thank you.