Seanergy Maritime Holdings Corp (SHIP) 2021 Q1 法說會逐字稿

Thank you for standing by, ladies and gentlemen, and welcome to the Seanergy Maritime conference call on the first-quarter 2021 financial results. We have with us Mr. Stamatis Tsantanis, Chairman and Chief Executive Officer; and Mr. Stavros Gyftakis, Chief Financial Officer of the company, apologies.

(Operator Instructions) I must advise you that this conference is being recorded today.

Forward-looking statement. Please be reminded that the company publicly released its financial results, which are available to be followed on the Seanergy's website at seanergymaritime.com. If you do not have a copy of the press release, you may contact Capital Link at (212) 661-7566, and they will be happy to send it to you.

Before turning the call over to Mr. Tsantanis, we would like to remind you that this conference call contains forward-looking statements, as defined in Section 27A of the Securities Act of 1933 as amended, and Section 21E of the Securities Exchange Act of 1934 as amended, concerning future events and the company's growth strategy and measures to implement such strategies.

Words such as expect, intend, 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 the operations outside the United States, changing rules and regulations applicable to the shipping industry, and other risk factors included from time to time in the company's annual report on Form 20-F and other filings with the Securities and Exchange Commission, the SEC. The company's filings can be obtained free of charge on the SEC's website at www.sec.gov.

The company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements and contained herein to reflect any change in the company's expectations with respect thereto or 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.

Thank you, operator. Hello, everyone, and thank you for joining our call. Today, we will discuss our results for the first quarter of 2021, and we will provide you with a general update of the major corporate events that have taken place.

After going through a transformational year in 2020, where Seanergy laid a solid foundation for the future through several important transactions, from the beginning of 2021, we have focused mainly on positioning the company optimally to take advantage of the strong dry bulk market.

I would like to highlight the following important milestones for the company.

Seanergy's fleet will reach 16 Capesize vessels after agreeing to acquire one more Capesize ship since our last update. This represents a 50% fleet increase compared to the end of Q3 2020. All vessels acquired are built at the highest quality shipyards in Japan, and two of them come with exhaust gas scrubbers installed.

On a fully delivered basis, the market value of our fleet should be approximately $412 million against debt outstanding of about $207 million. A total investment of $134.3 million has been made in 2021 for these purchases, and total new debt of approximately $42.3 million will be added to our balance sheet by the end of Q2 2021. This represents a loan to value of approximately 33% on these new five vessels. The weighted average interest rate of the new debt is about 3.1%.

As regards to our commercial developments, we have entered four new period employment agreements. Three of these time charters are index-linked, benefiting directly from the strengthening of the market. One is at a fixed rate of $31,000 per day for 12 to 18 months.

We are currently on course to see the best year for Capesize market in many years. Our fleet achieved a first quarter 2021 daily time charter equivalent of $16,219 per day, increased by 92% (sic - see press release, "91%") from the first quarter of 2020.

Adjusted EBITDA was equal to $7.9 million, sharply up from $1 million in the same quarter last year. At the moment, more than 95% of our fleet days for the second quarter are fixed at a level of approximately $22,400 per day. And we consequently expect further sequential improvement in our financial performance.

Cash and cash equivalents, as of March 31, 2021, stood at $54.4 million (sic - see press release, "$58.1 million"), compared to $23.7 million as of December 31, 2020. Debt outstanding at the end of the quarter was approximately $131.5 million. Shareholders' equity at the end of the first quarter of 2021 was $188.1 million, compared to $95.9 million (sic - see press release, "$95.7 million") at the end of the fourth quarter 2020.

Let's move on to discuss the most important developments since our last earnings call.

On May 10, 2021, we took delivery of the cape vessel Hellasship. The ship was built in 2012 in Japan, and this was the very first delivery of the five Capesizes agreed to be acquired within 2021. The ship was fixed with a major charter on a 11- to 15-month index-linked time charter.

During the same week, the company also took delivery of the Flagship, which was built in 2013, also in Japan. The vessel has commenced a time charter agreement with Cargill. The vessel will have an index-linked rate for a period of five years. And as mentioned before, Cargill will fund the installation of energy saving devices on the ship in order to improve its environmental performance.

In June 2021, we also expect to take delivery of the Tradership and the Patriotship, which were acquired in February and March 2021. These are our third and fourth new acquisitions for the year. As a reminder, the vessels were built in 2006 and 2010, respectively, at reputable Japanese yards.

Our fifth and final acquisition for the year so far is a top-quality, 2012-build Japanese cape vessel. This also is fitted with an exhaust gas scrubber system. We expect to take delivery of our 16th vessel in August. As a reminder, a special survey and ballast water treatment system installation for all vessels was completed by their previous and current owners, and therefore, we do not anticipate incurring significant capital expenditure for at least the next two years.

Moreover, two vessels come fitted with an exhaust gas scrubber system. Vessel values have been on a clear upward trajectory in the past months. And given the spot and time charter market conditions, I strongly believe that further improvements are well within reach.

Moving on to a summary of our loan facilities. We have reached definitive agreements on three new financing transactions. Our CFO, Stavros, will go into more detail on this shortly. But the total amount committed is approximately $73.5 million, and the average interest rates will be approximately 3.1% margin over LIBOR. This represents a much lower cost of capital than the existing loan facilities that were prepaid in the past few months.

Seanergy is, today, in an optimal financial position to capitalize on improving market conditions with a goal of creating substantial value for our shareholders imminently and in the next years. And with this message, I would like now to pass the call to our CFO, Stavros Gyftakis, who is going to discuss our financial results.

Stavros, please go ahead.

Thank you, Stamatis. I would like to welcome everyone to our first earnings call for 2021. Let me start by reviewing some highlights from our financial statements before discussing some of the important financing transactions that have taken place.

During the first quarter of the year, we experienced significant counter-seasonal market strength. Even as the first quarter is traditionally the weakest of year, the Baltic Capesize Index averaged approximately $17,000 per day compared to only $4,500 in the first quarter of last year.

Against this positive backdrop, Seanergy's daily Time Charter Equivalent improved from approximately $8,500 to approximately $16,200 during the quarter, which led to a 99% increase in net operating revenues from $7.5 million (sic - see press release, "$7.6 million") to approximately $16.3 million. Daily vessel operating expenses were stable compared to last year at approximately $5,500.

On a sequential basis, it is worth noting that daily OpEx improved from $6,100 in the fourth quarter of 2020, and we are optimistic about achieving further improvement as the adverse effects of the COVID crisis have started dissipating.

EBITDA for the quarter was equal to $6.7 million (sic - see press release, "$6.5 million") as opposed to approximately $1 million in the first quarter of 2020. Adjusted EBITDA, which excludes non-recurring, non-cash charges, was $7.9 million. The Capesize market has already registered a notable consecutive improvement from the already strong levels of the first quarter, and our daily TCE for the second quarter is expected to be approximately $23,000, as seen from the forward guidance in our press release.

Our fleet's daily cost breakeven rate per operating day for the rest of 2021 is expected to be equal to approximately $12,500 to $13,000 per day excluding CapEx, and we therefore expect our significant operating leverage to result in continued profitability improvements for the rest of the year.

Moving on, I'm pleased to note the large decrease in interest and finance costs during the quarter. Total interest and finance expense was equal to $4.4 million (sic - see press release, "$4.0 million") compared to $5.7 million in the same period of 2020. The figure includes large non-cash expenses related to the accelerated amortization of deferred finance charges resulting from the early repayment of some of our loans in February 2021, as well as amortization expenses related to our convertible notes.

Cash interest expenses were approximately $2.7 million, down 38% from $4.2 million in the first quarter of 2020. Daily cash interest expenses amounted to approximately $2,700 in the first quarter compared to $4,600 in the same quarter of 2020. Based on our current loan amortization schedule, the increase of our fleet size and operating days and the prevailing interest rate curve, we expect this improvement in daily cash interest costs to continue during 2021.

For 2022, we expect that cash interest expense should be at or below $2,000 per day per vessel on the back of the increase in our fleet size. I'm particularly happy to report that the financial restructuring, the early retirement of expense debt, and its replacement with low leverage competitively priced loans is having an immediate and visible positive effect on our financials.

Moving on to discuss our balance sheet highlights, Seanergy ended the first quarter with a cash balance of $58 million, up from $28.6 million (sic - see press release, "$23.7 million") at the end of 2020. Total debt outstanding was approximately $131.5 million, of which $127.5 million represents senior secured liabilities.

The book value of our equity was equal to $188 million, almost doubling from $95 million as of December 31, 2020. The significant improvement in the company's financial health during the first quarter came as a result of, firstly, the accretive equity offering that was completed in February; secondly, the early retirement of expensive and high leverage loan facilities; and thirdly, the significantly improved market condition.

While the first two are self-evident, I wanted to note that the rapid increase in vessel values over the first quarter has led to a sharp disconnection between our vessels market value and book value. As a result, our shareholders' equity on a market-wide adjusted basis is even higher than the figure on the balance sheet. After considering the recent vessel acquisition and the amortization schedule of our existing and prospective loan facilities, we expect that the pro forma debt position of the company at the end of the second quarter should be about $207 million. The fleet market value on a fully delivered basis should be approximately $412 million.

Regarding the important financial transactions concluded in our last update, the company has secured approximately $73.5 million in vessel financings, and is currently in advance discussions for an additional $31 million facility that we expect to be able to announce in more details very soon.

More specifically, on April 22, we entered into a $15.5 million credit facility with Aegean Baltic Bank secured by the Tradership and the Goodship. The term of the facility is 4.5 years, and the interest rate margin will be 4%.

On May 11, we entered into a sale and leaseback transaction with Cargill to partially fund the acquisition cost of the Flagship. The financing amount is $20.5 million at an implied interest rate of approximately 2% all-in, fixed for five years.

On May 20, we entered into a $37.5 million facility with Alpha Bank for the financing of the Leadership, the Squireship, and the Lordship. The purpose of the facility is to refinance the $25.5 million Leadership and Squireship facilities, while also providing additional financing of $12 million secured by the Lordship. The earliest maturity of the facility will be in December 2024, and the interest rate will be equal to LIBOR plus 3.5%.

I'm very pleased to note that through this transaction, the maturity of the Leadership and Squireship facilities was extended by two years from 2022, originally, to 2024 now. Being able to address debt maturities proactively is an important indicator of the improved financial health of our company. The terms that Seanergy is able to obtain on financing transactions are quite competitive at the moment, and we expect this to be an important factor facilitating our success as a company in the following years.

As an indication of these competitive terms, the all-in cash breakeven rate of our fleet, excluding CapEx, is now expected to be close to $30,000 per day in 2022 and onwards. This is a significant improvement on what the company was experiencing in previous years and put Seanergy on a more sustainable track.

Lastly, concerning the debt levels that have been added through the second quarter in our balance sheet pursuant to the update discussed previously, I wanted to note that we have taken a very conservative approach on leverage. And therefore, we are confident that the sustainable leverage levels seen in this report will not be distorted.

To provide some more color, after concluding all the financings currently contemplated, the net debt that will be added on our balance sheet as compared to year-end 2020, is only $42 million, whilst, at the same time, we have added vessels for an aggregate acquisition cost of $134 million, i.e., the new vessels are being added at a debt to asset ratio of 33%.

Summarizing my remarks, I mentioned in the last update that the capital raising and restructuring transactions that took place in the past six months allowed the company to access debt capital at competitive terms, and that it would contribute to profitability and cash generation capacity. I'm very glad to see all this materializing so soon.

This concludes my review. I will now turn the call back to Stamatis, who will discuss the market and industry fundamentals. Stamatis?

Thank you, Stavros. Moving on to a brief overview of the market conditions, I am glad to say that the positive outlook presented in our last earnings call remains robust. If anything, dry bulk market has shown even greater strength than expected. After years of marketing balances, we seem to have entered a long-term period of strong demand and slow fleet growth.

In 2021, dry bulk demand is expected to rise by approximately 4% on a ton-mile basis, while net fleet growth is projected to be around 2.8% in 2021, which will drop to only 1% in 2022. These figures are very constructive for the dry bulk market, especially when viewed in the context of very strong commodity prices and the post-COVID recovery that is driven by fiscal spending and infrastructure construction in many parts of the world.

As regards to the first quarter of 2021, the Baltic Capesize Index averaged about $17,000 per day and saw a significant improvement in sentiment after a relatively weaker Q4 2020, when the market was negatively affected by operational inefficiencies in Brazil. Capesize rates during the first half of -- sorry, the first quarter of 2021 ranged from a low of about $10,000 a day to high of $26,500 a day. This performance was truly exceptional considering the weak seasonality.

Global demand for steel and iron ore remains very strong, as China continues record volumes of steel making. In addition, Brazil iron ore exports are clearly recovering from the low levels of 2019 and 2020, and Vale recently stated its target of achieving 400 million of iron ore production by the end of 2022. This compares very favorably with the 320 million tons in 2021, and given the long-distance voyages out of Brazil, would generate substantial incremental Capesize demand.

In addition, coal shipment volumes are staging a very strong recovery from the extreme COVID-induced weakness of 2020. And the tensions between China and Australia have helped coal ton miles rise even more.

Having in mind that Q1 is traditionally the weakest quarter for Cape vessels, we expect to see an even stronger market for the rest of the year. We are particularly happy to see this optimistic sentiment reflected in one-year terms at a rate as opposed to being limited to spot earnings.

Indicative one-year time charter levels for a standard Capesize are currently around $28,000 per day, which is a big increase from $22,500 a day, which we reported in our last earnings call in March. Capesize asset values have risen by more than 45% since the end of 2020.

Looking at vessel supply over the next two years, we're very optimistic as the upcoming environmental regulations will have a positive effect in the market. The immediate reduction of emissions that will be enforced in 2023 will lead to the speedy reduction of 10% to 15% of the global fleet. This will result in an over supply squeeze that could lead to an impressive further rise of the market. The effect will be even greater when adjusted for the larger ships.

In addition, the uncertainty surrounding the future prevailing market marine technologies in order to comply with a 2030 global shipping emissions has led to the lowest newbuilding order book in decades. Going back to my initial point, we have entered into a super cycle that is expected to be sustainable for years to come.

Concluding, over the last years, we have carefully positioned Seanergy to take advantage of this super cycle. Our high-quality fleet with full market exposure, is expected to greatly benefit from this market. We're fully committed to creating strong shareholder value.

With that note, I would now like to turn the call over to the operator and answer any questions you may have. Thank you very much.

Operator, please take the call.

(Operator Instructions) Tate Sullivan, Maxim Group.

Yes, thank you, good day. Thank you for all the details on 2Q '21 guidance with the debt at the end of the quarter, but can you talk a little about 3Q -- 2Q to -- May 24, too? I mean, so just to recap, it's $207 million of debt by the end of the quarter, with $412 million market value of the acquired vessels, is that what you said earlier, please?

Tate, this is Stavros. Thank you for your question. Yeah, actually, this is the figure. It's the figures that you mentioned. I mean, we have one facility on financing that is currently being negotiated, and we're close to completing that. Assuming that these proceeds, our pro forma debt will stand at $207 million. And following the delivery of all the vessels that we have recently announced, the market value of the fleet will be at around $412 million -- $417 million. So yeah, that's the picture.

No, thanks. Thank you that helps for the forecasting our pro forma for the shifts. And then just -- can you give an update -- and it was great you included the detail on the shares outstanding after the Jelco warrant exercises, are there additional shares Jelco warrants outstanding related to the December SPA, please?

Hi, Tate. This is Stamatis. The answer is no. There are no additional warrants outstanding at this kind of levels with Jelco, so we have done well.

Great. And it sounds like -- I can do the calculations after and maybe could follow-up, too. But with about a 3% spread on your new debt, can you just give any comment on the cash interest cost? I think it was about $3,000 -- $2,000, or a little less than $2,000 per day per ship. I mean, so all-in, what do you expect your interest expense to decrease to pro forma for all the acquisition of the ships, or is that better to follow-up later?

Everything, all-in including LIBOR, we expect to be around 5%, including LIBOR.

Okay, great. Okay, thank you for those follow up details.

You're very welcome, Tate.

Poe Fratt, NOBLE Capital Markets.

Good morning, Stamatis. Good morning, Stavros. I was hoping if you could just clarify how you're going to handle the FFAs that you've locked in from the second quarter? And whether you're going to report the TCE average of $22,400 or is it going to be higher and then you're going to back out below the line, the FFAs?

Well, it's been recorded on a blended average. So that's why we just provided the guidance that at the end of Q2, having known what we knew at the time, we decided to hedge a very few of our ships at this kind of levels, which might seem very low today.

However, as compared to the information we've had on the FFAs at the time, especially the way that the Q2 always works, I mean, it was a multiple of what the FFA for Q2 always works, so we thought at that time it was a good hedge. Of course, we're proven not to be so correct about that. Still, the majority of the fleet operated at a very, very decent levels, around $28,000. So the blended overall average is about $22,000, $23,000. This is where we expect it to be for Q2, maybe a bit more.

Okay. Yeah, I was asking more about how you can report it, but -- so Stamatis, do you have any FFAs locked in for the third quarter at this point in time? And do you have --

We do, yes. Again, we expect the third quarter -- yeah, we expect the third quarter to be substantially higher than that. First of all, we're going to have one ship fixed for 12 to 18 months running at $31,000. So the one fixed ship will run at substantially higher levels. And then we have an average of about $25,000 on four other ships locked in for Q3. So we expect the Q3 figures to be -- knowing what we know right now, we expect it to be substantially higher than Q2.

Okay. That's helpful. So you have, I think, a total of six Capes that are subject to where you can use FFAs to lock in, so you've locked in on four of the six for the third quarter?

For the third quarter, we're going to have one fixed, 12 to 18 months, and five more converted at an average of $25,000, and one converted at $33,000. So like I said before, it's going to be substantially higher than that.

Okay. And then is anything fixed into the fourth quarter beyond that one-year-time charter at $31,000?

No, it's not. We have not fixed anything for Q4.

Okay. So you're completely open. Great. And then can you just -- Stavros, maybe walk through how we should be trying to work through the change in the cash position, if you could just give us some of the major cash flow statement items like acquisitions that you essentially the money that you spent on acquisitions in the fourth quarter?

And then also, if you could highlight working capital changes, that would be helpful. I'm just trying to get a cash walk between the year end and the end of the first quarter, if you could do that?

Yes. In the first quarter, I mean, we have reduced working capital by around $1.5 million. So you have a negative change in working capital by around $1.3 million or so. Then we paid around $20 million, $22 million for our advanced fees for the various vessel acquisitions, and I think that's all. For everything else, I mean, that is the cash flow, is derived from the P&L and reconciliation of the cash interest -- of interest expense to cash interest. I don't think that there is anything else missing. But I mean, if you need any more information, please let me know.

That's helpful. Those are the major items. And then could you highlight how much are you going to spend on acquisitions, whether it's advances, they're actually closing the acquisitions in the second quarter?

So in the second quarter, we're going to pay around $90 million. And we have drawn debt of $100 million, less $25 million, which we used for the acquisition. So we have added debt of around $75 million. We have paid $90 million for new vessel acquisitions.

Okay. And then --

What is important for you all to note, I mean, is that currently we have around -- as we speak now, we have around $50 million to $53 million in cash. We have loan commitments of around $38 million, and we have around $50 million, $52 million of outstanding commitments for our vessel acquisitions.

So pro forma, after all the new debt arrangements have been concluded and after we have taken delivery of all the ships, including the 16 ships that Stamatis discussed about it previously, we're going to end up with a cash position of around $35 million to $40 million. So basically, the acquisitions are well funded and very significant cash buffer in the balance for the company.

So Stavros, just to be clear that you expect pro forma cash at the end of the third quarter to be $35 million?

It's going to be around $35 million to $40 million end of Q3 from what you get, plus one unlevered ship. So the final ship will not have leverage for now. So if we decide to have another 30% to 40% leverage on that ship, then the cash balance is going to be around $15 million, $20 million more.

Okay. And then the $207 million that you referenced for the pro forma debt, does that include the convertible? Or is the convertible over and above that?

It does not include the convertible. We are in the process of -- hopefully, towards the end of the year, with the strong cash flows of the company, to aggressively reduce that as well.

Okay. And then just to clarify to the comments on the number of shares outstanding. The [8 million] warrants that were exercised by Jelco, those brought in $5.6 million, was that in the first quarter or the second quarter?

That was in the second quarter.

Okay. And then they did convert the debt -- sorry.

Yes. Well, that was basically a legacy thing that was negotiated back in December, and it was signed in the beginning of January of this year without knowing what kind of performance. I mean, at the time when the stock was at $0.50, obviously, providing convertibility at $0.70 or $1.20 appeared to be significantly higher. So that's a legacy situation that we're done with at now, and there's no more dilution to Jelco expected to happen.

Yes. No, I just wanted to make sure that I was accounting for that and try to figure out the first quarter versus the second quarter. In April, Jelco converted $3 million of debt into essentially shares, that [4.3 million]. My understanding, there was also warrants issued of like amount?

Yes. Yes, of course, the full units. Of course, yes.

Yes. So there's -- Jelco still has [4.3 million] roughly in warrants that they can exercise at $0.70?

Yeah. But these are all unregistered, and they cannot be registered prior to Q4. So these are not covered by any registration statement nor did we expect to find any registration statement whatsoever to register those. So if they become available for sale, it's going to be not before another five, six months.

Yes. I just wanted to make sure that I was -- again, I had full clarity on what still potentially could be issued looking at the rest of the year. And I thought you said that there weren't any warrants outstanding that Jelco had. And that's -- thank you for clarifying that.

Yes. I'm grateful.

Okay. I think I'm done. Thank you so much for your time.

No, no. You're going to have asked a question. Sorry, there's some sort of a delay in the call. So please feel free.

No -- actually, if you could follow-up on your decision to buy the world ship, and how that transaction came about? And what you're thinking as far as potentially additional acquisitions? You continue to look at growth as one of the corporate goals. So I was just -- maybe you could give us a little more color on how the S&P market looks right now?

Of course. First of all, as you know, for us, the investment into the Capesize segment, it's not just speculative or flipping exercise. We're heavily invested in that segment where the world's largest charter rates operate. And we have developed some excellent joint ventures and partnerships with some great names in this business. So for us, a commitment to Capesize, a commitment to the sector, not just buying a ship or selling another or things like that. And we have proven to be very right with the recent significant increase into the market.

Now, regarding your question about the availability of tonnage, we have been one of the most active buyers of second-hand tonnage of coal with the second-hand tonnage since the beginning of the year. We have both five out of the seven high-quality Japanese ships that were available for sale. So obviously, we have some internal edge, to put it this way, some good angle with quality Japanese sellers.

They make shifts that are considered to be commercially superior to other assets, and that has been proven to be right in the commercial arrangements that we have made. So we are very proud to have concluded or agreed to conclude five quality Capesize purchases since the beginning of the year.

Now going forward, we might be looking into additional talents depending on the cash flows. And of course, whether that is an accretive transaction for our shareholders. So we're not just going to be buying ships to buy ships, we think that the average price that we have paid for these five acquisitions has been very, very, very good. So we will just continue if and other opportunity arises later in the year. But for now, we're good, I think.

Okay, great. Thank you very much, Stavros.

You're very welcome, Poe.

I will now hand the conference back over to you, sir, for closing remarks.

Well, thanks, Helen, and thanks to everyone for attending our call today. We're done. Please check out our website in the next few weeks. We're going to be posting a very comprehensive presentation of what the company looks like today, tomorrow and the day after tomorrow. So stay tuned, and we're going to have some more information coming out on the website in the next few weeks.

Thank you very much for attending our call today.

Thank you. That does conclude today's conference. Thank you for participating. You may all disconnect.