Seanergy Maritime Holdings Corp. (SHIP) CEO Stamatis Tsantanis on Q3 2019 Results - Earnings Call Transcript

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Seanergy Maritime Holdings Corp. (NASDAQ:SHIP) Q3 2019 Earnings Conference Call November 5, 2019 8:30 AM ET

Company Participants

Stamatis Tsantanis - CEO

Stavros Gyftakis - CFO

Conference Call Participants

Tate Sullivan - Maxim Group


Thank you for standing by ladies and gentlemen and welcome to the Seanergy Maritime Conference Call on the Third Quarter 2019 Financial Results. We have with us Mr. Stamatis Tsantanis, Chairman and Chief Executive Officer; and Mr. Stavros Gyftakis, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session [Operator Instructions] I must advice you that this conference is being recorded today. Please be reminded that the company publicly released its financial results, which are available to download on the Seanergy website at If you did 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 contains forward-looking statements as defined in Section 27A of the Securities Act of 1933, as amended in Section 21E of the Securities Exchange Act of 1934, as amended, concerning future events on the company's growth strategy and measures to implement such strategy. 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; changes 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

The Company expressly disclaims any obligations or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Company's expectations with respect thereto and any change in events, conditions or circumstances on which any statement is based.

Now, I’ll pass the floor to Mr. Tsantanis. Please go ahead sir.

Stamatis Tsantanis

Thank you, Nicole. Good morning everyone and thank you for joining us today to discuss our results for the third quarter and nine-months period ending September 30, 2019. During the third quarter of the year, we saw sharp recovery in the capsize charter rates that sustained in the day. The recovery was mainly driven by the normalization of item exports out of Brazil, close to pre-crisis levels, as well as healthy trade volumes of iron ore, coal and bauxite globally.

In addition, we saw further charter rate spikes due to the vessel supply disruptions caused by the extensive accumulation of ships in the forest and shipyards for scrubbing them. The Baltic Capesize Index briefly exceeded 5,000 points at the end of September, the highest seen in several years well most importantly, it's the first time since the fourth quarter of 2011, that we see daily capsize rates standing consistently above $20,000 per day for more than 10 weeks.

As a result, we achieved the time charter equivalent rate of $20,143 per ship a day in the third quarter of the year, 2.4 times higher than the $8,368 per day seen in the first six months. Our fleet was well positioned to capture the recovery with our mix of spot and index-linked charters. The positive trend is continued in the fourth quarter of 2019 where so far approximately 80% of our fleet operating days have been fixed at another expense at equivalent rate of approximately $25,800 per ship per day. This represents an increase of about 68.5% as compared to time charter equivalent rate of $15,312 in the fourth quarter of 2018.

The sharp improvement was also experienced in our net income despite the heavy dry docking of our vessels for scrubber and ballast water treatment system installations, which in most cases are completed next to the respective vessels where we take surveys. Even the 70% of our CapEx program for the year has been successfully completed and there are currently only two vessels remain to be dry dock for upgrades and further surveys within the fourth quarter, we expect our cash flow generation to improve further in the coming periods.

Let us now discuss the most important developments of the recent months, scrubber installations and capital expenditures progressed. The retrofitting of our vessels with scrubbers is progressing good in our original schedule and budget and the first three installations were successfully completed between mid-July until October. Currently one installation is in progress with the further schedule to commence soon. We expect both vessels to be ready by mid-December 2019.

In particular the Capesize vessels Lordship and partnership sales from the yards and began employment under period chapters to the major European utilities company in August and September 2019, respectively. The cost of the equipment installation and associated of hires was within budget and has been or will be reimbursed by the vessels charters in the combination of upfront payments, and a fixed daily premium over the period of the time charters.

As regard to the M/V partnership, the scrubber installation was completed in mid-October, and the vessel continued its employment with major American commodities traders under the index-linked five years time charter it becomes in November of 2018. The installation costs were reimbursed and carried along with the associated of hikes. In addition to the scrubber upgrades, Seanergy also completed installation of certain energy saving devices in order to effectively reduce the vessels carbon footprint.

These improvements were undertaken in cooperation with the vessels charter as part of our environmental social governance initiatives or ESG. At this point, I'd like to seize the opportunity to note that we will continue to take the necessary actions to ensure that our vessels are well equipped to remain at the forefront of technical innovation. These investments are further improving the commercial and market value of our fleet and underpin the company's sustainable success.

Furthermore, the Capsesize vessels per square feet are currently in the shipyard and we expect both scrubbers to be ready by mid-December. According to the structure of our agreements, that costs will also be covered fully by the vessel charters through a lump sum payment at the start of its time center in addition to a fixed daily premium to be paid throughout the duration of the costs.

Lastly, it should be noted that where possible we have combined the dry docking for scrubber installations with periodic surveys and ballast water treatment system installations in order to maximize the utilization of our fleet in 2020. As a result of the surveys and ballast system installations for three ships that were initially scheduled for 2020 were brought forward to the current year, and therefore these vessels are expected to generate revenues without disruptions under their respective charters for the next five years.

Furthermore, having completed a special survey for the M/V Lordship and Leadership, we expect overall dry docking days to be minimized in the years to come. As we discussed many times previously, this unique partnership with our charters they present an investment of more than $15 million by them in Seanergy until the end of the year.

Last but not least, having five other thin vessels under index-linked employment further enhances our ability to track the performance of the Capesize spot market and benefits from the improving trend as well as from temporary market spikes. We continue to explore similar initiatives and we have seen recently renewed interest from our charters for similar structures.

Therefore, we expect soon to be in a position to announce additional deals for more vessels being upgraded and entering into long-term time charters. I will update the number of shares issued and outstanding. I’m pleased to report that the warrant C dilution overhang deriving from our offering last May is now almost complete.

Seanergy’s share count as of to-date is approximately 27 million common shares. There is a negligible amount of only 61,100 Class A warrants that remain outstanding, therefore no significant changes in our number of shares is expected going forward from this Class C.

Lastly, in October our annual shareholders meeting took place whereby all proposals recommended by our board were approved, i.e. the appointment of two Class A Directors, the ratification of our regulators and the reverse split. I would like to emphasize that the company's management does not intend to enact the reverse of split unless it is deemed absolutely necessary, in order to regain compliance with the Nasdaq capital market, minimum bid price requirement. I will now pass the call to our CFO, Stavros Gyftakis who will review our financial performance for the reporting period. Stavros?

Stavros Gyftakis

Thanks Stamatis. Good morning, everyone. Thanks for participating in our call. I would now discuss our financial results for the third quarter of 2019, due to the recovering date experience since the end of the second quarter, our profitability in the third quarter improved substantially and with despite our fleet staging capacity haven't been restricted by periodic dry docking surveys and scrubber installations. Our fleet achieved time charter equivalent date of $20,143 up 19% compared to the third quarter of 2018 and by 140% from the first half of the year.

Nonetheless, the recorded TCE does not capture in full the commercial performance of our vessels. This is because we recognized revenues using the low to mid accounting and therefore validates at the end of the quarter contributes negatively towards the TCE calculation for the period. Therefore, we expect to realize part of the benefit of our group features in the fourth quarter as reflected in this time charter equivalent guidance provided in our earnings release.

Net revenues for the quarter amounted to $24 million, a decrease of 9% compared to $26.4 million in the same period of 2018. The negative alliance may be added up to 21% decrease in operating days due to the dry docking related to free scrubber installation and ballast water treatment installations and two scheduled dry docking surveys, including that of the 2001 leadership. This well set to large extent by the highest time charter equivalent and (inaudible).

While the third quarter of 2019, we recorded vessel operating expenses of $4.8 million, a decrease of 3% compared $5 million in the third quarter of 2018. The decrease was due to 9% decrease in ownership days, that was offset by 7% increase in daily OPEX which was due to the timing of certain expenses, which have to do mainly with the preparation of the receipt of granules. General and administrative expenses were $1 million in the third quarter of 2019 , reduced by 34% compared to $1.5 million in the same quarter 2018, third quarter EBITDA was $9.8 million up by approximately 200% compared to an EBITDA of $3.3 million in the same period of 2018.

We know the EBITDA in the third quarter of last year was impressed by $6.9 million non-cash loss that recorded in connection with the sales of two Supramax vessels. Since we are in the case, I would like to highlight (inaudible) environment of 25,000 per day, we are capable of generating approximately $60 million in EBITDA annually. Interest and finance costs in the third quarter of 2019 amounted to $6.1 million a marginal increase of 3% from the third quarter of 2018. However, and what is most important to note is that actual cash interest came in at $3.5 million marking interest reduction of 22% compared to $4.5 million in the same quarter last year.

As extensively discussed in previous updates, non-cash expenses as comprised of items related to the amortization was beneficial compression feature of the convertibles deferred finance and other charges mainly related to the private placement of sales to in line. Net income for the third quarter of 2019 was $0.7 million as compared to close to $5.6 million in the same period last year.

As regards to nine-month periods as of September 30, 2019, valuation of the fleet stood at approximately $12,037 down by 4% compared to the nine-periods of 2018. Net revenue revenues decreased by 9% to $58.7 million as operating declined by 14% due to the dry dockings and the sale of Supramax units.

Moving onto EBITDA, we saw an increase of 22% to $11.9 million compared to $9.8 million in the same period of 2018. Interest and finance expenses for the first nine months of 2019 were equal to $18.1 million reduced by 4% in comparison to the same period of 2018, whereas cash interest expenses amounted to $10.8 million as compared to $14.8 million marking an improvement of 27%. Net loss for the nine-months period was approximately $14.7 million was a challenging earnings environment and the resulting loss of the first six months for bottom line for the full-period.

Turning to our balance sheet, as of the end of the quarter, Seanergy has $15.4 million in cash and cash equivalents which is comprised of $14.5 million in free liquidity and $0.9 million in its free cash. The company's total liquidity as of September 30, 2019 was $19.5 million and is made up of costs including costs and undrawn commitments as in certain of our convertible notes and under credit facilities as inflation our scrubber installation program.

Shareholders equity as of September 30, 2019 was equal to $26.7 million increased from $21.3 million at the end of 2018. Considering that usually softer volatile market over the first half of the year and restriction for fleet due to particularly demand dry docking schedule, the increase in shareholders equity is deemed (inaudible).

Tuning to our senior secured loans, all lending institutions leasing firms will equal $189.6 million or approximately $19 million per vessel while subordinated debts held by Jelco amounted $24 million or approximately $2.4 million per vessel. Based on cash and cash equivalents of $15.4 million and sales in balance sheet deposits held as cash collaterals for one of our lenders and net debt for vessel is approximately $19.7 million.

Concerning our upcoming debt maturities, our discussion on last update we have approximately $64 million of debt that expires within 2020, $5 million mature in the first quarter, $29.4 million in the second quarter, and further $29.4 million in the fourth quarter. The maturity send to all the units in our fleet and three of 2010 one, and all loans are sufficiently covered by market value for respective vessels. We have engaged in discussions with current levels of these vessels for the extensions and the loan maturities as well as other financial institutions including leading Chinese and Western resource. We are confident of our ability to timely address maturities and expect to be able to provide more details in our next earnings call. This concludes our review of the financials. I will now turn the call back to Stamatis who will discuss the market and industry fundamentals before concluding his final remarks. Stamatis?

Stamatis Tsantanis

Thank you, Stavros. In 2019, we saw a very healthy demand for seaborne transportation of iron ore, coal and bauxite. Unfortunately bad incidents in Brazil and Australia, all of which occurred in the first half of the year led to a reduction of more than 60 million to 70 million tons in the third quarter volumes of iron ore.

Since the beginning of the second half of 2019, similar normalization of non-supportive volumes, and hence the market has moved to much higher levels as we have been discussing throughout the call to-date. The average five routes are the Baltic Capesize Index, the year based period is higher than the same period of last year even after all the negative effects of the first half. It is not above this improvement has taken place over a period of high macroeconomic uncertainty, as well as other events contributing to high volatility, which makes us optimistic about the supply and demand fundamentals at present.

Looking beyond the north or the near-term outlook in 2020 growth, the seaborne trade of iron ore is expected to accelerate by 3% in terms of total mile demand according to Clarksons Research. The interest in ton miles is a result of rising Brazil and Australian exports and comes after other short year-on-year decline of 3.1% expected in the full-year period of 2019.

Furthermore, we have seen a few positive development supporting an growth in the next years. Recently, Vale was given the green light to restart production on the Alegria Mine which is expected to introduce about 8 million tons of additional supply into the Supramax. Additionally, further 16 million tons a year of our capacity in that province, is expected to restart in 2020 and 2021.

Moreover, they have decided to take the necessary steps to initiate the restart of operations at the San Marco Mine which closed down three years ago, four years ago, the timing of which is also placed towards the end of 2020 or the start of 2021. I remind everyone that the San Marco Mine alone set about 13 million tons a year. In this context, Vale produced about $385 million tons or iron ore in 2018 and after giving the guidance of about 320 million tons for 2019 as a result of the accident, we expect the overall volume to increase further by at least 50 million to 60 million tons in the year 2020.

As far as Australian miners are concerned, iron ore experts from Rio Tinto, BHP and Fort are expected to expand by more than 30 million to 35 million tons in 2020 according to analyst. In short, we find the proposed, the prospects for continued growth in cargos, both the Atlantic and Pacific basins very encouraging for the future outlook.

It is also important to know that worldwide sales demand in 2019 remained resilient through a year of heightened macro economic uncertainty and against a very volatile ethanol price that exerted strong pressure from steel neutral stability since January 2019.

The resilience was driven mainly by China's real estate sector and for 2020 would still expect further growth in worldwide steel demand this time driven mainly by developing Asian economies.

Moving on to fleet supply, the Capesize fleet is expected to grow by around 3% and 4% in 2019 and 2020 respectively, mainly driven by versus deliveries and the reduction of the Malaysian view to the current stronger market. This projections about the general size of the fleet however, do not account for the extensive disruptions caused by continued installations of scrubbers on Capesized vessels beyond January 2020, as well as the potential for slow steaming as a response to the introduction of IMO 2020.

These two factors should both continue to restrict effective fleet supply over the next years. To demonstrate the importance of such disruptions as well as wide headline numbers of fleet growth should not be taking the face value, one may consider that the actual improvement seen in the 2019 Capesize market or for the period where item or product decreased by 3% and fleet supply grew by 3%. Given the ongoing technological uncertainty to comply with restrictions in long-term greenhouse gas emissions, and the relatively high price for new building vessels seen at the moment in combination with a low value project on vessels, it is our firm belief that new building ordering will not likely materialize anytime soon, since the decision to build a new vessel does not make any clear economic sense.

Lastly, even though we rarely comment on vessel values, it can be very interesting to note that despite the sharp improvements seen in the charter market, the relevant secondhand vessel prices have fallen actually, by about 10% from the end of 2018. As realized vessel earnings remain on the right path, we would expect to see this improvement reflected in increasing secondhand vessel values over the next month.

As a result of the both supply and demand dynamics, Seanergy remains confident that the positive trend established in the Capesize market over the past two years is expected to continue beyond the second half of 2019 and we are greatly positioned for that. On this note, I would like to turn the call back to the operator and answer any questions you may have. So Nicole, go ahead.

Question-and-Answer Session


Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Thank you. We will now take our first question, please go ahead. Your line is now open.

Tate Sullivan

Hi, thank you. It’s Tate Sullivan from Maxim Group. Apologize if I miss some context on this earlier but that I hear you mentioned the potential for $60 million EBITDA annually, and what are the variances in that or the expectations that lead to that number, please?

Stamatis Tsantanis

Well, I mean on an current rate environment, I mean, the EBITDA of the company can exceed $60 million or even $65 million of EBITDA. But that’s again on an annualized basis, and assuming that charter rates remain at $25,000 a day. So, yes, I mean, that's an accurate figure, although no one can guarantee that we can have right now annualize $25,000 a day as daily time charter equivalent rate for the Capesize.

Tate Sullivan

Okay, thank you. Thank you. And then out of your 10 vessels, so 80% of the days are fixed for 4Q, and do all 10 of your vessels have the option to switch to a fixed rate for three to six months period, so how does that in general work?

Stamatis Tsantanis

Well, not all of them have the option to opt out of the existing fleet that is operating on the two ships, three ships actually have the option to convert into a fixing. So I don't think that will have any immediate intention of fixing for December, for example, we will consider once we progress towards the end of the year, and see how the rates, the follow-out develop for Q1, we will decide at the time but for the time being we’re just going to take the market which right now is averaging around $24,000, $25,000 a day for now.

Tate Sullivan

Okay, thank you and last from me. In terms of the downtime related to the scrubber installations and pulling forward the ballast equipment work and the reimbursement from the customers, should I look at that reimbursement is almost a pass through. So what you're spending during the downtime to install the scrubbers is being reimbursed in most cases on a real time basis from the client or some delay in that?

Stavros Gyftakis

Thank you, Tate, this is Stavros, thanks for your question. It’s actually, very good question. It's not entirely pass through with very informative table in the press release, which discusses, for example, for the third quarter each of these were reimbursed by the charters and which were covered by Seanergy who have sent an agreement, some of the catalyst cover 100% of the base, in some cases where we're doing bounds for certain seasons, and we passed the vessels to the schedule grade and then days for Seanergy’s account.

Tate Sullivan

Okay, great. I'll take a look at that.

Stavros Gyftakis

The expenses, the expenses you said in some cases it's pass-through, in some cases we’re in virtual expenses either through lump sums when we deliver the vessels and we are expecting time charters all through fixed premium over the index-linked hires.

Tate Sullivan

All right. Okay, thank you for all that detail. Have a good rest of the day.

Stavros Gyftakis

Thank you, Tate.


Thank you. [Operator Instructions] There are currently no further questions on the lines. Please continue.

Stamatis Tsantanis

Because there are no further questions, then we will disconnect the call.


Okay, thank you. That does conclude the conference for today. Thank you for participating. You may disconnect.

Stamatis Tsantanis

Thank you, everyone. Thank you. Bye-bye.

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