Seanergy Maritime Holdings Corp. (SHIP) CEO Stamatis Tsantanis on Q2 2021 Results - Earnings Call Transcript
Seanergy Maritime Holdings Corp. (NASDAQ:SHIP) Q2 2021 Earnings Conference Call November 2, 2021 10:00 AM ET
Stamatios Tsantanis - Chairman & Chief Executive Officer
Stavros Gyftakis - Chief Financial Officer
Conference Call Participants
Tate Sullivan - Maxim Group
Magnus Fyhr - H.C. Wainwright
Thank you for standing by and welcome to the Seanergy Maritime Holdings Corporation Second Quarter 2021 Financial Results Webcast.
This press release contains forward-looking statements as defined in Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities and Exchange Act of 1934 as amended, concerning future events. Words such as may, should, expect, intend, plans, believes, anticipates, hopes, estimates and variations of such words and similar expressions are intended to identify forward-looking statements. Those 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, the company's operating or financial results, the company's liquidity, including its ability to service it's investors competitive factors in the market in which the company operates, shipping industry trends, including charter rates, vessel values and factors affecting vessel supply and demand, future pending or recent acquisitions and dispositions, business strategy, areas of possible expansion and contraction and expected capital spending or operating expenses, risks associated with operations outside the United States, risks associated with the length and severity of the ongoing novel coronavirus, COVID-19 outbreak, including its effects on demand for dry bulk products and the transportation thereof and the other factors listed from time to time on the company's filings with SEC, including its most recent annual report from the 20-F.
The company's filings can be obtained free of charge on the SEC's website at www.sec.gov. Except to the extent if required by law, the company expressly disclaims any obligations or undertaking to release publicly and update of revisions to any forward-looking statements contained herein to reflect any change in the company's expectations with respect thereto to - or any change in events, conditions or circumstances on which any statement is based.
I will now like to hand the call over to your first speaker today, Mr. Stamatios Tsantanis, CEO. Please go ahead, sir.
Thank you, operator. Hello, everyone and welcome to our earnings call. I'm excited to announce a record third quarter for Seanergy with our best financial results since we launched the company in 2015. This is attributed to the strongest Capesize market in more than a decade as well as to our significant fleet expansion in a timely manner. During this call, we will discuss our financial results and all major corporate developments before providing an update on our view of current market conditions and dry bulk market outlook. First, I will start by highlighting that we are now completing our substantial fleet growth from 10 to 17 Capesize vessels where all but one, are already contributing to our revenues in a very strong market. We expect our final delivery to be completed in November.
Total investment in 2021 for these acquisitions was $193 million and was achieved while maintaining a solid liquidity position with moderate leverage. In addition to the significant contribution to our cash flow and new acquisitions as well as our total fleet have already increased in value considerably. In 2021, we have concluded 10 new time settle employment agreements of at least one year period each. So all our vessels will operate in period employment with world-renowned charterers. Following a tough multiyear period for our industry that led to limited new-building activity, the dry bulk fleet order book is currently at the lowest level in two decades. Looking ahead, the upcoming environmental regulations for the CO2 emissions are expected to reduce the effective vessel supply progressively starting in 2023. As a result, we believe the Capesize market is supported by the most favorable demand-supply fundamentals of its recent history. After several years of hard work, Seanergy has a high-quality Capesize fleet with tremendous operating prospects and the sustainable balance sheet to navigate the next years very successfully.
Now moving on to a brief summary of our financials. During the third quarter, Seanergy generated gross revenues of $50 million and adjusted EBITDA of $32.2 million, a big increase of 146% as compared to gross revenues of $20.4 million and 148% up compared to adjusted EBITDA of $13 million in the same quarter of last year. Net income amounted to $20 million and $20.7 million in the third quarter and nine month period, respectively. Cash and cash equivalents as of 30, September 2021 were equal to $52 million compared to $24 million as of the 31st of December 2020. Debt outstanding at the end of the quarter was approximately $204 million, while shareholders' equity was equal to $222 million. Our Capesize TCE for Q3 was $30,760 per day, marking a 90% increase compared to $16,200 for the same period of 2020. As of today, we have fixed 69% of the fleet for Q4 at an estimated TCE of $38,440 per day. Assuming the current FFA rate for the remaining of the quarter, our estimated TCE for the fourth quarter would be approximately $35,200 per day.
Let us review some of the main developments in more detail. Within the third quarter, we took delivery of two Capesize vessels that we have agreed to acquire earlier in the year. In July, we took delivery of the Friendship a Capesize built in 2009 in a reputable shipyard in Japan. The vessel has been placed on a time charter with a leading Japanese operator for a period of 17 to 24 months approximately, at a floating rate based on the Baltic Capesize Index. In August, we added the Worldship to our fleet, a high-spec 2012 built Capesize bulk carrier also built in a very reputable Japanese shipyard. The vessel has entered into a 12- to 16-month time charter with a leading commodity trading company at a fixed daily rate of $31,750, ensuring a very high fixed returns on its capital employed. We also sold our oldest ship, the Leadership, during the third quarter and has now been delivered to its new owners. The sale and it's replacement with younger ships improves our overall fleet age profile.
In October, we agreed to acquire another Capesize vessel built in Japan in 2010 which will be renamed the Dukeship. The new acquisition is expected to be delivered within November and will immediately commence employment with a large dry bulk operator at the rate linked to the BCI for a period of about 13 to 18 months. As mentioned earlier, in 2021, we have concluded 10 new time charter employment agreements of at least one year period, each show all our fleet will operate in period employments with world-renowned charterers. 15 of our vessels will be employed on index-linked charters and two vessels are on fixed time after rates at daily levels exceeding $30,000.
With respect to our ESG initiatives, we have always been at the forefront of all major environmental regulations and we are intensifying our efforts to meet IMO's decarbonization targets for 2030. We have recently endorsed the Call to Action for Shipping Decarbonization, a global coalition of over 190 industry leaders and organizations. In addition, we have signed agreements with DeepSea for the installation of artificial intelligence performance systems on our fleet and with Marsoft for the screening of selected vessels which promote transparency of our energy efficiency upgrades. With a view to optimizing the energy efficiency of our fleet, we have decided, in some cases in conjunction with our charterers to install Energy Saving Devices on the entire fleet. This upgrade program will progress gradually, with the installation of ESDs taking place during each vessel's upcoming drydock. We want to ensure that the speed of our expanded fleet will not be impacted materially by the upcoming environmental regulations.
Finally, we are investing in the research and development of emission reduction technologies, including biofuel blend trials which is expected to contribute considerably to the transition to a greener shipping industry. Since the beginning of 2021, we have concluded new financings and refinancings of $134 million while repaying $82.3 million on existing debt facilities. In the third quarter alone, we have a great two new financings of approximately $30 million while repaying $12.6 million on our existing financing. Specifically, we completed the financing of the M/V Friendship with one of our long-term lenders while receiving Commitment Letter from a major Greek bank for a sustainability-linked loan secured by the Worldship.
Our weighted average interest rate for the first nine months of 2021 has reduced by approximately 130 basis points over the same period of 2020 and we expect this trend to continue in 2022, as our finance team is taking advantage of strong market conditions to achieve better financing terms.
Our CFO, Stavros, will offer more details in these facilities and it's now time to pass the call to him. I will come back for the market update shortly. Stavros, please go ahead.
Thank you, Stamatios. I would like to welcome everyone to our third quarter earnings call for 2021. Let's start by reviewing the main highlights of our financial statements for the third quarter and nine month period that ended on September 30, 2021. As mentioned briefly by our CEO, the exceptionally strong dry bulk market had a direct reflection on our financial performance with vessel revenues reaching $50 million and marking an increase of 146% from the second quarter of 2020.
Our daily time charter equivalent for the quarter was $30,764, a 90% increase compared to $16,219 for the third quarter of 2020. Our guidance for the fourth quarter is higher, standing in excess of $35,000 and with eight vessels operating under unhedged index-linked time charters, we are on track to see even stronger financial results. Adjusted EBITDA in the third quarter of 2021 was $32.2 million, up from $7.8 million in the same quarter of 2020 and net income for the quarter was a record $20.1 million, up by 460% from a net income of $3.6 million in the same quarter last year. While we note that the 2020 figure was affected by a $5.2 million gain on debt refinancing. The increase in the net profit by $17 million over an increase of 14,500 in our daily TCE underscores the significant operating leverage of our company.
For the nine months period that ended September 30, 2021, we recorded a daily time charter equivalent of $23,449 compared to $10,267 in the corresponding period of 2020. Gross revenue was equal to $100 million, an increase of 130% from $43.5 million in last year's corresponding interim period. Adjusted EBITDA for the first nine months of 2021 was $51.4 million, up from $7.3 million in 2020.
Lastly, net income recorded in the period was equal to $21 million as compared to a net loss of $16 million in the first nine months of 2020. Other daily operating expenses, excluding predelivery expenses, improved marginally quarter-over-quarter to $5,865 in the third quarter of 2021 from $5,984 in the same period last year. For the nine month period that ended on September 30, 2021, operating expenses saw a slight increase to $5,806 from $5,573 in the first nine months of 2020. As has been the case since the start of the pandemic, operating expenses continue to be affected by disruptions in the worldwide operations of our fleet, leaving aside the extraordinary expenses for arranging and successfully completing the deliveries and especially crewing of newly acquired vessels.
Moving on to our financial expenses. It is positive to see significantly lower interest both in the third quarter and in the first nine months of the current year. Focusing on the cash interest expense, i.e., after netting out noncash charges in the third quarter of 2021, the company incurred approximately $3 million of cash interest and finance costs, down from $3.5 million in the third quarter of 2020. Bringing to the picture the positive impact of the new additions in our fleet, the interest expense per operating day in the third quarter of 2021 was $2,065 as compared to $3,618 in the third quarter of 2020. For the nine month period that ended on September 30, 2021, interest and finance expense, excluding noncash items, was equal to $8.2 million when compared to $11.7 million in the same period last year.
As regards to our solid balance sheet position, I would like to take the time to illustrate the remarkable improvement on the leverage side during 2021 on absolute and relevant terms.
Total debt outstanding was $247 million as of the end of the third quarter of 2021 on the fleet of 16 vessels with a total scrap value of $250 million. This compared with $212 million outstanding debt at the end of 2020 on a fleet of only 11 vessels and with a total scrap value of $160 million. Debt outstanding per vessel at the end of the third quarter of 2021 was $50.4 million against $19.3 million at the end of 2020. At the same time, average market value per vessel as of September 30, 2021, was approximately $31.4 million, up from about $17.7 million at the end of 2020. Also it is worth noting that these figures exclude our increased liquidity reserves of about $52 million compared to about $23 million on our balance sheet at the end of the previous year. Total shareholders' equity has increased to $222.3 million as of the 30th of September of 2021 from $95.7 million at the end of 2020 and $119 million at the 6-month mark back on June 30, 2021.
The increase in vessel values since the start of the year means that the market value of our vessel is higher than the book value by more than $100 million as of the latest balance sheet date. The market value adjusted equity is therefore higher than what is reflected on our balance sheet. Now based on third-party broker evaluations as of the end of September, the market value of the six vessels that were acquired up until the end of the third quarter has already appreciated by approximately $36 million versus the acquisition price and, therefore, the accretion that our well-timed fleet expansion program has created for shareholders is significant. And this, even without factoring in the benefit of the substantial cash flow that these vessels have generated since their respective deliveries. Based on the market values for our fleet as per September 30, 2021, our corporate leverage is estimated currently at approximately 43%.
I would now move on to discuss the financing transactions that have taken place since August. During the quarter, we funded the Friendship through 13-million top-up loan by modifying the existing facility with Alpha Bank. The financing we have at the term of four years will bear interest at LIBOR plus 3.25%. Furthermore, we obtained the Commitment Letter from [indiscernible] bank for a five year loan of $17 million to refinance part of the acquisition cost of the Worldship. This is a green financing and the interest rate margin will be reduced depending on the CO2 emissions of our vessel. It is good to see our commitment and efforts to reduce the carbon footprint of our operations being recognized by our lenders and I am optimistic that similar agreements will be achieved going forward. The applicable interest rate is LIBOR plus a margin of 3.05% with potential improvement depending on CO2 emissions. On both new loans, the value maintenance, flows and other covenants are in line with our financing agreements and afford Seanergy a reasonable amount of financial flexibility.
Looking forward, we are currently in proactive negotiations to address the loan maturities that are secured by three vessels and fall due in the fourth quarter of 2022, with total [indiscernible] of payments of approximately $42 million. Given our discussions to date, the favorable market conditions and also considering that the debt represents only a small fraction of the $100 million aggregate market value of underlying ships, we are reasonably confident of achieving a complicative refinancing with very competitive terms.
Before concluding with my remarks, I would like to note once more that during 2020 and 2021, we have undergone a transitional period with important changes for the better. We are already starting to see the positive effect of this reflected on our financial statements but I still believe that during 2022, we will be able to see a much clearer reflection of the full benefits of lower interest rate margins and lower cash breakeven in the context for greater scale. As a result of the above, I would expect to see further improvements, both on operating and financial expenses in 2022.
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. I want to start the market update discussion by reiterating that we're very optimistic for the long-term prospects of the Capesize market which is supported by the most favorable demand-supply fundamentals of the recent history. The strong surge in demand for raw materials like iron ore and coal as well as various operating inefficiencies related to COVID pandemic played an important part in the recent spike of day rates. This increase of the rates occurred even though the global fleet average speed has increased by more than 50% in the last 12 months. We expect demand for dry bulk commodities to continue growing at a healthy pace in the next years and a declining effective vessel supply.
Spot market volatility will always be a significant part of the Capesize market. To analyze vessel demand a bit further in the period from 2022 to 2024, dry bulk demand is expected to rise by approximately 2.5% annually. Net fleet growth is projected to be around 2.1% annually.
In the Capesize sector, we expect demand growth to be driven mainly by long-distance cargoes like Brazilian iron ore exports and bauxite from West Africa. High-quality iron ore has very advantageous environmental qualities in terms of CO2 emissions when turned into steel, while aluminum demand is also rising. Energy, infrastructure and property development are all likely to continue to generate demand for raw materials, such as iron ore, coal and bauxite.
As regards to vessel supply, I must say that we are in the most disciplined state of the recent history. This discipline is an indirect result of the upcoming environmental regulations for the CO2 emissions that will come to force in 2023. Firstly, the new environmental regulations has led to significant uncertainty about the standards of newbuilding vessels in respect to engine and fuel types. This means that the new vessel could become obsolete well ahead of its usual life span of 25 years which makes little economic and commercial sense in order to make new buildings in great numbers.
The new EXI and CII roles will impose speed reductions on the existing fleet starting in 2023. This is the most important thing of our days. The extent of these reductions depends on the age and other characteristics of the existing vessels. Bearing in mind that 2/3 of the cabin fleet has been built prior to 2012, we expect that in some cases, the speed reduction could be very substantial. The above factors may lead to a material vessel supply squeeze as the effective available global tonnage will start to reduce.
Going back to my initial point, we have entered the period of strong demand and slow fleet growth and we expect to last for the next years. Over the last years, we have worked vigorously to position Seanergy in a very advantageous place ahead of the super cycle. Our great and homogeneous fleet with extensive market exposure is expected to benefit substantially from this environment. I'm excited about the progress we have made so far and what the future years will bring.
And with that, I would like to turn the call over to the operator and answer any questions you may have. Operator, please take the call. Thank you.
[Operator Instructions] And your first question is from the line of Tate Sullivan of Maxim group. Please go ahead.
I just want to start. Can you - can we talk about your October acquisition of the Dukeship a little bit the $34 million acquisition [indiscernible]. Can you just give an idea of how you look at the internal rates of return and where you stress that rates go and what gets you comfortable completing that acquisition in October?
Yes, of course. First of all, this ship, we don't have any plans for financing, so we're just going to leave it debt free for now. So on the basis that is going to be a cash-only acquisition. And assuming, for example, that we're going to have a necessary rate of about $2.5 million [ph] - sorry, $25,000 a day for next year. That implies something in the region of - return on invested capital of about 12%. This is what we think it's going to yield. That's on a cash-only basis, excluding a leverage or things like that. So, we strongly believe it's a very, very decent return at these numbers to have an EBITDA of - let's say, $3.5 million, $5 million.
Great. And then...
Per year. That's per year, sorry.
Per year. So then even if you stress the rates a little more going out, I mean, you still get an internal rate - and then do you assume certain scrap value in 10 years. And so I mean what - do you have a hurdle rate before evaluating future acquisitions? Or can you just describe strategically how you look at it going forward as well?
Well, right now, I think we're going to have a pause on the acquisitions for a number of reasons. Number one, we have already expanded the fleet substantially by almost 70% in the last 12 months. So that's a very sizable increase of the fleet by itself. We are also seeing that the values of the ships are starting to rise. I'm not saying no to end - to a quality acquisition in the future but that's going to come on to replace all the tonnage. So we don't have anything in mind. So for the time being, I don't think we would be looking actively for any future - for an - in the immediate future for any fleet expansion.
Okay. And then, I mean, going past 4Q to the current quarter and then if rates, I mean, do - held above $25,000 a day and the cash you can generate, I mean, do - does the priority turn to possible repurchases or paying down debt? Or how are you looking at next year?
Yes. We are fully focused - first of all, you can assume that there's not going to be any imminent acquisitions and we're fully focused on distributing and returning shareholders distributions as well as share buybacks. So this is top of our priority and seizing the opportunity now. I need to say that we have not really been so active in the stock buyback front, because, at that time - when the stocks started to drop, at that time we had entered the blackout period because of the earnings. So, we haven't really been active because we were in a blackout period. Now after the earnings that we exit the blackout period, we're going to be very active in supporting the stock through buybacks as much as we can.
Great. And last one for me. Is the Leadership you delivered to the new owners on September, so the cash inflow from that, do you - does your balance sheet as of 9/30 reflect that cash?
Well, the $52 million that we see on the balance sheet is pro forma basically the sale of the leadership, yes. So that includes the cash of the Leadership inside, $52 million.
Okay, great. Okay, thank you. Thank you. Have a great rest of the day.
Thank you, Tate. Have a great day. Thank you.
Thank you. Your next question is from the line of Magnus Fyhr from H.C. Wainwright. Please go ahead.
Yes. [Indiscernible]. Just a follow-up question on the capital allocation. You mentioned share buybacks and potential cash distribution; what are your - what is your view on dividend distribution versus buybacks? I mean some of the competitors have started to announce the dividend strategy. And I was just curious to what's Seanergy's stance there?
Yes. That's an excellent question, Magnus. We want to - we will most likely do a combination of both. So we will start with the stock buyback. And once we are certain that our dividend policy is going to be sustainable, then at a certain point, we will start that dividend policy. It's nothing imminent yet. I just want to make sure that whatever dividend we announced it's going to be sustainable. So announcing a dividend right now and six months or a year down the road, having to discontinue the market is bad. It's certainly something that we don't want to do. We want to feel 100% certain that our dividend distribution is going to be sustainable for many, many quarters to come. So we want to feel that certainly, we're going to see how Q4 and Q1 goes.
As you have seen, the market has dropped significantly. So we want to be a little bit cautious about our dividend plan. And at the end of the day, paying a token dividend just to pay a dividend, it's not our style. I mean whether we're going to do it, it's going to have substance and it's going to be sustainable. So this is what we want to do. In the meantime, once we exited from the blackout period, we'll start making repurchases in order to support the stock as much as we can.
All right. And how do you achieve sustainability? I guess that's a big question with a dividend strategy. You have converted a few of your index-linked product to fixed rate. So is that something you would continue in order to pay a dividend? If - I mean, how - what's your thoughts there as far as getting a sustainable dividend?
Yes. First of all, we have reduced the breakeven of the company substantially. So we have a great room to have a sustainable dividend in the future. We strongly believe that the market is going to be strong for the years to come. But in the meantime, there's going to be volatility like we are seeing now. Rates can go from $80,000 down to $30,000 and maybe back up again. So in the meantime, we're going to have a lot of volatility. And that volatility is not $5,000, $10,000, $20,000. It's in the region of $50,000 a day. So we're talking about a huge number of uncertainty in respect of day rates and cash flow, as you can appreciate. Having said that, we believe that the market is going to be way more positive from the second half 2022 with the new environmental regulations kicking in the beginning of 2023. So there's going to be a natural improvement into the market coming from these environmental regulations. And once we have better clarity, we will have a more sustainable dividend policy.
We're not going to wait until then to possibly announce a dividend policy. We're just going to make sure that we're going to - we have strong cushion for a good dividend distribution to our shareholders. So to answer your question, what we're doing from floating to fixed, it's very, very short, it's a very short run. I mean we do it for three to six months. We don't do it for years. We strongly believe that there's going to be availability for a longer period fixtures in 2022 for two years, three years or more at rates in excess of $30,000, $35,000 a day and that is going to allow even more distributions from our end.
All right. And just to continue on maybe looking at the short term, you mentioned the second half of 2022 looks attractive. How do you play the near term? Do you just stay at spot or do you think there could be opportunities to go along, I mean, given the volatility in rates?
Well, for the first quarter of 2021 which is usually the weakest quarter, we have an average of $27,000 fixed on seven ships. So seven out of the 17 ships have been fixed at an average of $27,000, either on our fixed rate time charters or conversions from floating to fixed. So we are way above the current rate now for the first quarter. So having said that, we believe that the market is going to be stronger from Q2 onwards, as it always is. And there's no need to continue fixing more. Now if there is another spike in the market, we will continue doing that. But in the meantime, I think we're relatively well hedged for the first quarter of 2022.
Very good. That's all I have. Thank you.
Thank you, Magnus. Have a great day.
Your next question is from the line of Poe Fratt of NOBLE Capital Markets. Please go ahead.
Paul, your line is open. If you wish to state your question?
He's probably been disconnected, Ella.
And there are currently no further questions. Please continue.
All right, Ella. Well - and everybody, thank you very much for attending our call today. It's been a record financial results for Seanergy. We are very optimistic about the long-term finance - about the long-term prospects of the market and we strongly believe that we are in the historical opportunity right now. There will be volatility in the short term but we're very positive for the long-term prospects of the market. That being said, I would like to thanks - to thank again everyone for attending our call. And Ella, you may disconnect the call if you want.
Thank you. With that, we conclude the presentation today. Thank you for participating. You may disconnect.
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