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

Thank you for standing by ladies and gentlemen, and welcome to the Seanergy Maritime Holdings Corporation Conference Call on the first quarter ended May 31, 2023, financial results. We have with us Mr. Stamatios Tsantanis, Chairman and CEO; and Mr. Stavros Gyftakis, Chief Financial Officer of Seanergy Maritime Holdings Corp. [Operator Instructions]. Please be advised that this conference call is being recorded today, Thursday, May 25, 2023. The archived webcast of the conference call will soon be made available on the Seanergy website, www.seanergymaritime.com. Many of the remarks today contain forward-looking statements based on current expectations. Actual results may differ materially from the results projected from those 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 first quarter ended May 31, 2023, earnings release, which is available on the Seanergy website again, www.seanergymaritime.com. I would now like to turn the conference over to 1 of your speakers today, the Chairman and CEO of the company; Mr. Stamatios Tsantanis. Please go ahead, sir.

Thank you, operator. Hello. I would like to welcome everyone to our conference call. Today, we are presenting the financial results of the first quarter of 2023, while we're also pleased to announce the distribution of another cash dividend. As we discussed in our previous earnings call, during the first quarter of 2023, we went through adverse seasonality in the Capesize market. The Baltic Capesize Index averaged approximately $9,100 per day, and obviously, this affected our financial performance considerably. We have reviewed this market weakness mainly to the tail end of the COVID restrictions in China. However, following China's official reopening in March, we have seen a strong rebound in industrial activity as well as vessel charter rates for Capesizes. The overall fundamentals are quite encouraging for the remainder of the year. Notwithstanding the weak Q1, our Board of Directors has declared another regular cash dividend of $0.025 per share which brings our total dividend distributions since the beginning of 2022 to $1.30 per share or approximately $1.55 per share when including the shares of United Maritime at the current trading price. I will now provide some financial highlights. And our CFO, Stavros Gyftakis, will provide further analysis later in this call. As I mentioned earlier, the average BCI for Q1 was approximately near $9,000 per day, but our daily time charter equivalent outperformed this figure once again by approximately 20%. Our Q1 net revenues amounted to $18 million. Our EBITDA was $8.2 million, and we had a net loss of $4.2 million. The decrease from last year's corresponding figures primarily reflects the decline in the daily time charter equivalent from approximately $19,300 last year to about $11,000 per day this year. However, we expect that our financial performance will improve significantly along the recent rise in the Capesize charter rates. Specifically, in the second quarter of 2023. Based on our actual fixtures to date, we expect to achieve a time charter equivalent of approximately $18,850 per day. Consistent with our track record, this represents a premium to the average Baltic Capesize Index recorded so far in the current quarter. I will now provide an update on our current fleet commercial developments. During the first quarter of 2023, we delivered the trader ship and good ship to the new owners pursuant to our agreement to sell them for an aggregate price of approximately $36 million, recording an accounting gain of about $8.1 million. We're currently looking at Capesize acquisition opportunities to partially replace the tonnage we sold and to further reduce our fleet's average age. Furthermore, following the decision to repurchase the Championship from its sale and leaseback arrangement, we secured a new long-term time charter agreement for a period of 24 to 30 months. Under the new terms, the vessel will earn a premium to the Baltic Capesize Index and the scrubber profit-sharing scheme will be significantly improved, resulting in higher profitability. Additionally, we also agreed to extend the time charters of Knightship and Geniuship for periods between 11 and 15 months at substantially the same terms as before. The repeat business with our charters is a testament of our excellent commercial relationships and of our solid technical and operational capabilities. Out of our 16 Capesize vessels, the scrubber-fitted ships are 9. We get the majority of the scrubber benefit on 5 of those ships. I remind everyone that we did not pay for any of the installations of scrubbers on any of our ships. Lastly, looking beyond specific pictures of the past weeks, we've taken the opportunity to convert some of our vessels index-linked charters into fixed rates using the conversion option. At the moment, we have fixed approximately 25% of our remaining calendar days for 2023 at a level of about $20,500 per day. Moving on to other financing transactions. During the quarter, we continued our focus in optimizing our capital structure. And to that end, we completed 3 refinancing transactions for a total amount of $53.8 million that led to the release of approximately $15 million in liquidity. Stavros will go into the specifics of this transaction shortly. But I want to point out the importance of balancing our capital requirements between shareholder returns and fleet renewal over the next years, and we believe we have the appropriate liquidity for both. Last but not least, so far this year, I have already purchased Seanergy shares in the open market worth approximately $750,000 at an average price of about $5.17 per share, given the wide discount of our share price to Seanergy's intrinsic value, I intend to continue purchasing shares over the next months, always keeping in line with our internal trading policy and restrictions. I remind everyone that I have never sold any of my Seanergy shares. I will now pass the call to our CFO, who is going to discuss our financial results before I return to discuss our market update. So Stavros, please go ahead.

Thank you, Stamatios. I would like to welcome everyone from my side as well to our earnings call. Let us start by reviewing the main highlights of our financial statements for the first quarter ended March 31. Net revenue for the quarter was equal to $18 million, reflecting a decrease from the net revenue of $29.7 million in the same period of 2022. This was the result of the seasonally softer earnings environment which inevitably impacted our results. At the same time, our EBITDA was equal to $8.2 million, below the $12.8 million in the same quarter last year while we recorded a net loss of $4.2 million versus a net profit of $3.7 million in the first quarter of 2022. However, with freight rates having already increased more than 80% compared to the first quarter average, we are confident that our bottom line will improve going forward. This is also backed by our successful freight hedging strategy for the rest of 2023, as discussed earlier by Stamatios . Moving on to our balance sheet. Our cash at the end of the first quarter may have been reduced compared to the previous quarter, but remained satisfactory at $20.5 million or approximately $1.25 million per vessel, this despite the $4.5 million payment of the dividend for the third quarter of 2022, which took place in the first quarter of 2023, and the repayment of $8 million of our only outstanding convertible note. At this point, it is worth noting that since the end of the first quarter, we have completed 3 new financing transactions, which have added approximately $15 million of extra liquidity. I will come back with more details on this in a moment. As regards to debt outstanding, this stood at $226 million at the end of the first quarter, translating to a modest loan-to-value ratio of 47%. After refinancings, the ratio has just marginally increased to 49%. Finally, total shareholders equity amounted to $220 million as of December 31, 2023, practically unchanged from the end of 2022. Let me now add some more details about our recent refinancings. During April, we managed to refinance 3 of our vessels through 2 sale and leaseback agreements and the new sustainability-linked loan. The first new sale and leaseback agreement is with the Japanese vessels for an amount of $90 million for the Knightship. With a new agreement, the vessel was sold and started back on a bareboat basis for a 6-year period. We have continuous options to repurchase the vessel following the second anniversary of the bareboat charter, while at the end of the 6-year bareboat period, the ownership of the vessel will be transferred to Seanergy at no additional cost. The interest margin of the facility is 120 basis points lower than the 1 of the previous financing. The second sale and leaseback facility was agreed with another Japanese vessel for an amount of $90 million and was utilized to partly refinance a loan facility with a Greek bank secured by the Lordship and 2 other vessels. The Lordship was sold and started back on a bareboat basis for a period of 4 years and 5 months, while we have continuous options to repurchase the vessel following the second anniversary of the bareboat charter. At the end of the bareboat period, we have a final purchase option at $7.8 million. The new interest margin is 50 basis points lower than the previous financing. The third refinancing was performed through a loan facility with Danish Ship Finance and existing lenders of the company. In particular, we amended and restated the existing facility with these lenders secured by the Fellowship and Premiership to refinance a sale and leaseback agreement for the Championship. The amend facility includes a new tranche of $15.8 million secured by the Championship, while a sustainability adjustment mechanism was introduced in respect of the underlying interest rate of the entire facility. The new tranche has a 5-year term and the interest rate is 2.65% over 3-month term SOFR, which can fluctuate by 5 basis points based on certain emissions reduction thresholds. This is our fifth vessel financing and tailing a sustainability element, and we are glad to contribute on multiple fronts to the industry's decarbonization efforts. With the additional liquidity ratio from these transactions, we are equipped to encounter any market conditions while also being able to exploit an opportunity that may arise in the next quarters and ultimately create value for our shareholders. Through the series of transactions, we also managed to reduce our interest rate margin in a period of successive central bank interest rate hikes. Moving on and before returning the call back to Stamatios, I would like to remind that Seanergy has declared already $23.4 million in cash dividends since the beginning of 2022 and has concluded some $35.5 million in securities and purchase in the same period. Seanergy is committed to continue prioritizing shareholder rewards utilizing our effective corporate and commercial strategies and the management has facing the prospects of the company in the Capesize market. This and the sale and lease connection between our trading price and the fair value of Seanergy are the main reason for me joining Stamatios in his open market purchases a little this year. 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. Q1 was a disappointing quarter for the Capesize market with the usual seasonal factors playing their role and notably the tail end of the COVID restrictions in China. The average BCI rate for Q1 was a mere $9,100 per day. Net Capesize fleet growth in the quarter was 1.9% year-on-year, but when accounting for the unwinding of port congestion, the effective growth in ship supply was much higher. To a large extent, this reflects the front loading of new vessel deliveries for the year, while congestion has now reached very low levels. Supply growth for the balance of 2023 is expected to be considerably slower and according to Clarksons total 2023 Capesize fleet growth is expected to be around 2%, which has already taken place within the first quarter of the year. The improvement in vessel earnings that has occurred since March is quite encouraging and a clear indication of the favorable market balance. Let's now move to a discussion of the high-level demand and supply picture. Regarding Capesize vessel demand, iron ore and coal ton miles are expected to grow by around 2% and 4%, respectively, in 2023, with growth being sustained at similar levels into 2024. Bauxite seaborne trade, which has also emerged as an important source of demand in the recent years, is expected to grow about 5% in absolute terms. The long-term decarbonization and urbanization trends lend support to increasing bauxite trade and aluminum consumption is expected to keep growing robustly. One particular point I wanted to make is that the port inventories in China, iron ore have fallen to multiyear lows. So we believe we may face a 20 million to 30 million ton restocking process in the next months, that can play a very significant role in the next quarters. Regarding the general economic environment, it should be noted that in 2022, we saw staling industrial production driven by high inflation, rising input costs, rising interest rates, and China being in locked down for almost a third consecutive full year. During 2023, we are already starting to see a reversal of these trends. And although this is a slow process, I'm confident that overall demand is going to be quite healthy. Moving on to vessel supply, the outlook for the Capesize sector remains very encouraging. The limited newbuilding activity over the last few years has kept fleet growth at very low levels. Going forward, most estimates point to 2% fleet growth for 2023 and marginal growth of 0.3% for 2024, along with the limited fleet growth, the progressive slowdown trend due to the loan regulations is expected to reduce effective fleet supply, and that will support further the freight rates. Once again, the Capesize order book as a percentage of the active fleet is currently in 1 of the lowest points within the last 3 decades. Once again, we firmly believe that Seanergy is in a great position to deliver higher terms in this environment despite the challenging first quarter of the year. We have remained consistent with our pledge to reward our shareholders through capital distributions and we will continue doing so based on the expected strong markets during the next few years. On that note, I would like to turn the call over to the operator and answer any questions you may have. So operator, please take the call.

[Operator Instructions] We are now going to proceed with our first question and the question comes from the line of Tate Sullivan from Maxim Group.

It's good to hear you, and on the -- a lot very active on the financing front and to summarize, is it diversifying lenders or moving away from lenders that were less flexible on terms, on expiring facilities? What would you summarize as the overall strategy? Was it mainly to add your lenders, please?

I will take it, this is Stavros. Look, for different -- I mean, the 3 refinancings that were done basically for different reasons, the Championship, the sale and leaseback with Cargill was coming to an end in November. So we took a proactive stance there, which was mainly commercially driven because we wanted to improve the terms of the chartering and the terms of the scrubber benefit. So basically, we took the decision to repurchase the vessel a bit earlier and were supported by 1 of our house banks, the Danish Ship Finance, which caters also for lower interest expense. Now on the 2 financings which were done through the sale and leasebacks in Japan, strategically, we want to do more financing with Japan because they offer both flexibility and reduce cost at sizable advances. So it was, I mean, firstly, to improve the financing terms and secondly, to release some liquidity in order to be able, firstly, to take advantage of any opportunities to grow or renew the fleet. And secondly, to have ample liquidity to face any market conditions.

Great. Great. And yes, I mean meaningful debt reduction in the first quarter, but then you're adding -- added the extra liquidity this quarter. And Stamatios can you with the market backdrop, I mean, encouraging with the supply already coming into the market, but then I think the rates have declined somewhat recently. I mean is there any short-term factors that you can point to that hopefully should go away that should help rate start to rebound to reflect the positive supply-demand dynamic?

Well, yes, basically, what happened is that everybody had a lot of high expectations for the Chinese reopening. But I'm afraid this did not live up to their initial expectations. So we're seeing some of that high to deflate. However, as I mentioned previously in the call, we are seeing multiyear lows into the iron ore port stock inventories. And that means that China will be forced or we expect China to restock that at a certain point soon. And that's going to lead into increased voyages towards China. So we have full confidence that the Chinese infrastructure investment is going to continue. We will see that restocking taking place. And generally, we're very optimistic in the short term and in the second half as well. So it's a temporary thing what we're seeing now. It started off with the best possible expectations. I think that has kind of deflated now. But I think we will see a strong rebound in the market in the next few months.

And then with most of the supply growth already taking place, I mean, ships coming out of the new build, out of the yards, I assume, have newbuild prices started to decrease or are yards seeking bids for new Capesize orders...

On the contrary, we don't see any new building Capesize vessels being ordered, and the reason is multiple. First of all, you have a very high spread between a 10-year-old or a 5-year-old ship as compared to a new building, so it doesn't make any financial sense. At the same time, all the shipyard slots are pretty much taken by containers, LNGs and tankers. So there's no open slot until well into 2026, so even if someone was completely crazy and wanted to place a new building order today, you will still have to wait 3 years before you take delivery of that ship. So having said all that, we don't really see any problems arising from any newbuilding order book in the near future.

And Stavros if we go back to the balance sheet, just my last question, please, is any -- what are the shortest term maturities after all the recent refinancing out of the $223 million of total debt roughly CapEx?