Seanergy Maritime Holdings Corp.
Q2 2017 Earnings Call Transcript

Published: 14 Sep 2017

[Operator:]

Thank you for standing by, ladies and gentlemen, and welcome to the Seanergy Maritime Conference Call on the Second Quarter 2017 Financial Results. We have with us Mr. Stamatis Tsantanis, Chairman and Chief Executive Officer of the Company. At this time, all participants are in a listen-only mode. There will be presentation followed by a question-and-answer session. [Operator Instructions] I must also advise you that the 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 seanergymaritime.com. If you do not have a copy of the press release, you may can contact Capital Link at 212-661-7566, and they’ll 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, considering future events and the company’s growth strategy and measures to implement such strategy. Words such as expects, intends, plans, believes, anticipates, hopes, estimates and variations and 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, change 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 www.sec.gov. 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 or any changes in events, conditions or circumstances on which any statement is based. Now, I will pass the floor to Mr. Tsantanis. Please go ahead, sir.

[Stamatis Tsantanis:]

Thank you, Judy. Good morning, everyone and thank you for joining us today. I'd like to open this call with a statement about the improved dry bulk market conditions, which contributed to our first positive EBITDA since our fleet renewal took place in 2015. Our EBITDA for the second quarter of 2017 was $3.5 million compared to negative $0.6 million in the same period last year. In the first part of 2017 the dry bulk market improved considerably compared to the historical lows in 2016 and the Baltic Capesize index peaked around $20,000 a day in March, while the value of five-year-old Capesize vessels exceeded $32 million. Despite this recovery, the time charter equivalent rate is still well below the 20-year average, so is the relevant Capesize value. As a result, we would like to express our confidence in our ability to further improve our operating income in this environment as the positive trend continues. The improved market conditions and our larger fleet led to a 125% increase over our net revenues in the second quarter as compared with the second period last year. Apart from this, the first half of 2017 has been very constructive towards the execution of our business plan. We have achieved equity accretion of around $29 million for our company, thanks to the excellent timing of our acquisitions as well a gain from our $0.70 on the dollar refinancing of the MV Championship. We have secured strong time charter contracts for two of our Capesizes that are estimated to generate considerable revenues for Seanergy as we'll see below. I will now discuss the most important developments that has taken place so far in 2017. We have recently regained compliance with NASDAQ's minimum bid price requirement. It is very important to note that we did not resort to a reverse stock split or other dilutive actions like a number of listed peers that have become serial reverse stock splitters. As regards to fleet employment, during the second quarter of 2017, we saw the commencement of two previously announced time charters. After taking delivery of the partnership in May, the vessel has commenced employment under time charter to a major European utility and management company for a period of about 12 to 18 months at a gross daily rate of $16,200. Delivery to the charters took place in June and this employment is expected to generate approximately $8.8 million of gross revenue assuming a period of 18 months. A time charter rate of the partnership has been one of the highest fixed period rates achieved in the whole market in 2017 to date. Furthermore, the Lordship began employment under its extended time charter contract in June for a period of 18 to 22 months with a major European charter. The charter rate is index linked based on the [five] [ph] growth average of the Capesize index. Moreover, we have the option at any time to convert the index linked rate into a fixed rate corresponding to the prevailing value of the Capesize forward freight agreement for a duration between 3 and 12 months. We are constantly evaluating opportunities to fix more of our vessels on time charter context that will increase our customer visibility and profitability. Moving on to financial developments as previously discussed in our first quarter call, we decided to terminate a small aftermarket equity offering program in June. This ATM lasted between the February and April 2017 and approximately $2.9 million in gross proceeds were raised. I want to stress the fact that the total $28.3 million of gross proceeds raised from public equity offerings since August 2016 have been utilized for highly accretive transactions that laid the foundation for long term profitability and high shareholder returns. The combined accretion in value that we have created for our shareholders from these transactions is around $29 million representing more than 100% appreciation of the funds that the new investors have entrusted with us. In May, the company entered into an $18 million secured loan facility with Amsterdam Trade Bank and into a $16.2 million facility with Jelco that was used to fund acquisition over the partnership. Turning to our financials, as of June 30, 2017, our shareholders equity was $24.3 million, our total cash balance was $9.2, while our total debt outstanding was approximately $244 million. In the second quarter of 2017, our net revenue was equal to $18.4 million up 125% from $8.2 million in the same quarter of 2016. The increase is attributable to an increase of 40% in operating days due to a larger fleet and to a 107% increase in our daily time charter equivalent rate. The daily time charter equivalent earned by our fleet during the second quarter of 2017 was equal to $11,668 as compared to $5,650 in the second quarter of 2016 an improvement of 107% due to better market conditions. In particular, our Capesize fleet and a time charter equivalent of 12,720 up 159% as compared to 5,350 per day for the second quarter of 2016 and up 54% sequentially from the first quarter of 2017. In respect to our vessel operating expenses, our fleet average combined daily OpEx were equal to $4,585 consisting of $4,652 for the Capesizes and $4,477 for the Supramax vessels. Needless to say, that we have one of the lowest daily OpEx figures in the industry while maintaining our fleet in the highest quality. Our low level of operating expenses was a very important contributor in our ability to generate a strong EBITDA, a strong profit, operating profit during the quarter and we expect that our continues focus and investment will place us among the lowest cost owners in the industry. In the first six months of 2017, net revenue was $51.7 million up 109% from the same period in 2016. Our time charter equivalent rate increased by 110% while operating days were up 27% due to vessel acquisitions that took place after the first half of 2016. The daily time charter equivalent earned by our fleet in the first half of 2017 was equal to $9,846 as compared to $4,685 in the same period of 2016 an improvement of 110%. In particular our Capesize fleet earned a time charter equivalent in the first half of the year of $10,620. The average daily operating expenses were equal to $4,605 and similar to the same period of last year. Once again it is important to note that our daily vessel operating expenses have stabilized at a very low level. Moving to a review of industry conditions, as already mentioned, in the first half of 2016 was the worst period for dry bulk market since the late 1990s and despite the improvement seen so far, market conditions are still far below the mid-cycle levels. Current estimates suggest that the total global trade of dry commodities is forecasted to increase by 4.1% which implies an incremental fleet requirement of 5.6%. However, a global dry bulk fleet is expected to increase less than 3.9%, which is expected to result in a tonnage deficit of approximately 1.7%. Average Baltic Capesize rates peaked at levels close to $20,000 per day in March of 2017 and after a summer slowdown [indiscernible] seen Capesize Index stabilizing at levels of around $20,000 a day. We believe that this is part of a long-term recovery. Furthermore, favorable market conditions are also reflected in the period charter market where we saw an impressive number of 120 [indiscernible] in the first half of 2017 compared to approximately 79 [indiscernible] in the whole year of 2016. This along with the positive sentiment we experienced in our discussions with the major charters is an important improvement of underlying market dynamics as charters are willing to pay relatively healthy rates to locking ships for longer periods. We also expect this trend to improve. Long-term, we expect demand for sea bulk transportation of iron ore and coal to continue to be strong as significant export oriented capacity expansions are taking place in Brazil, Australia and Africa. As a result, we view the overall increase in shipping demand to improve steadily. At the same time, the growth in dry bulk fleet has slowed considerably especially in the Capesizes where we expect negative fleet growth in 2018 and 2019. As an indication of supply conditions, the overall dry bulk vessel order book has declined from levels in excess of 60% in 2010 to about 7% to 8% currently. For the standard Capesize vessels, the current order book stands at 3% of the fleet, which is a historical low. To put this in context, the total order book right before the mass ordering that took place in 2013, 2014, stood at around 19%, 20% of the fleet, which is obviously completely different to the current situation. Demolition has reduced from record levels of 2015, 2016 and we're not currently on pace to see annual levels close to 30 million tons in 2017. However, we expect the future volatility in freight rates along with increased environmental restrictions and changes in the technical specification of vessels to put dry bulk owners in a position where they will need to choose between scrapping ships and making costly investments in new equipment that will allow all vessels to keep on trade. This is likely to reduce effective vessel supply added by tying up vessels in dry dock facilities or leading to increased demolition. As a result, I believe that the expected increase in demand along with the anticipated negative fleet growth over the next two years are going to lead to higher charter rates and vessel values. On a final note, Seanergy is one of the best positioned companies to capture the significant upside of the market. We have the strongest focus in the Capesize sector, which represents the best dry bulk fundamentals. Our Capesize cost base is the lowest in the peer group with no expensive legacy acquisitions. Our lower breakeven rates will deliver significant cash flows. We have a very committed principle shareholder with strong shipping heritage and expertise. We have solid corporate governance with no related per transactions in ship management and our main strategic objective is to continue our fleet expansion into Capesize sector with accretive acquisitions. On that note, Judy back to you.

[Operator:]

Thank you very much sir, [Operator Instructions] The first question today is from the line of James Jang from Maxim Group. Please go ahead.

[James Jang:]

Hey good afternoon, guys.

[Stamatis Tsantanis:]

Hi James. Good morning, hi.

[James Jang:]

So, I just had a couple of questions on what's going on in Chine right now. So, it seems like the steel production is up, but there is also news that infrastructure spending is down. How do you guys look at imports for the rest of the year? Do you still feel bullish?

[Stamatis Tsantanis:]

We're very bullish and what we actually saw in a report yesterday is that China's port stocks [indiscernible] have shown the steepest decline since 2015. That means that the last three months China has consumed more than 10% of the accumulated stock of iron ore, just to give you an example. So, we have seen a big decline in port inventories which is very good because they are consuming more and more of these inventories and this is coming ahead of the winter heating season and its basically pollution control policy. So, I think that they will produce as much as they can. We are now in a situation where the Chinese port stocks are declining rapidly and also it appears that the steel stocks inventories are also declining rapidly. So, there is a lot of iron ore and steel movement. So, we're very, very bullish for the next six months. We haven't seen this kind of reduction of stocks since 2015. So, at that time, the rates almost tripled when this happened in 2015.

[James Jang:]

Okay. I am just -- and looking ahead, it's really hard to gauge what China is doing, but there is news out of Guangzhou that they're banning coal imports and the cement output in China is falling. Are you guys looking to hedge any of these kind of black swans with more charters or are you comfortable riding out whatever happens until we get into the '18 and start looking at higher charter rates?

[Stamatis Tsantanis:]

As discussed in the earnings calls, we are always open to discuss long term [indiscernible] employment. Personally, I will be in Singapore next week to visit our major charters and the previous time I was there back in May, we managed to fix the partnership at one of the highest rates seen so far in 2017. So, I intend to do the same. I cannot really guarantee the outcome, but one of the purpose of the treaty is to see whether we can lock in some of the payments for a period of 12 to 18 months. However, we're very bullish about the stock market. It's not that we're doing it because we feel that the rates will go down. We're very bullish about the stock -- about the time charter rates and at the same time we'll seek to take some of our ships on higher employment periods.

[James Jang:]

And my last question is on fleet growth, I know you guys have been active in growing your fleet out. What's the SMP market looking like now on the Capesizes? Are they still really tight or are you seeing more availability of vessels?

[Stamatis Tsantanis:]

It is becoming tighter and tighter James unfortunately because a number of ships that were up for sale have been withdrawn from the market. We are still being offered a few ships, a few good candidates for potential acquisitions, but I think that we're going to be running out of good options by the end of the year as the market will further increase. So generally, the market becoming tighter and tighter. We still have a few months that we can potentially do some more acquisitions at historical low levels, but this trend is not going to last forever, sorry, the trend is higher, so the lower prices will not last forever I think it will come to a turning point where we will not see five-year-old ships in the 20s any more, which has already happened.

[James Jang:]

Yeah, looking at the five-year-old in the 30s, so let's say what level would you be comfortable at looking at let's say a five-year-old vessel like what's your threshold? If the market is really tight [indiscernible] continues to increase like right now I have a five-year-old Cape Japanese or Korean built at $33 million. If that goes higher to like $35 million, $37 million, will you still be comfortable with the five-year-old's or would you look to older vessels like 10-year-old?

[Stamatis Tsantanis:]

Well for us, the actual value of a ship is subject to returning capacity. I think that five to seven or even 10-year-old is the sweet spot for the company and if the value starts to go up, we will start to explore investment opportunities on a project basis, which means that we'll try and look up certain long-term time charters if the budget is going in the mid 30s or the 40s. So at least has a portion of the fleet repaid or a portion of the ship repaid after completion of the time charter. So instead of speculative vessel-by-vessel acquisitions that we can still do and we have very successfully done so far, we look at it on a project-by-project basis.

[James Jang:]

Got you. Okay. That's all I have. Thank you, guys.

[Stamatis Tsantanis:]

Thank you very much James. Thank you.

[Operator:]

[Operator instructions] The next one is from Barry Blank from Divine Capital. Please go ahead.

[Barry Blank:]

Yes, congratulations. It was a very good quarter, but I have a question for you. Since the stock is over a $1, there really is no reason to have to do a reverse split because reverse splits are detrimental to price of the stock. What is your thoughts on that?

[Stamatis Tsantanis:]

We do not have any need/plans to do any reverse stock split and as I said in the call before, we have nothing to do with other companies that have become serial reverse stock splitters. It has -- when we send out proxies for the AGM, at the time we needed to do the reverse stock split if the stock price is not recovered by November, so that was lifting whether it is going to be voted or not I think is going to be voted, but we do not intend and the Board and the management of the company does not have an immediate plans to do a reverse stock split by any means and we do not associate ourselves with companies that have resorted in these kind of things.

[Barry Blank:]

Thank you very much.

[Stamatis Tsantanis:]

You're welcome.

[Operator:]

There are currently no further questions waiting. I'll hand the call back to you.

[Stamatis Tsantanis:]

Okay Judy. Thank you very much and thanks everyone for participating in today's call and look forward to catching up in our next conference call which I expect is going to be sometime in early November to discuss our third quarter finances. Thank you.

[Operator:]

Thank you very much sir. Ladies and gentlemen, that does conclude our conference for today. Thank you all for your participation. You may now disconnect your lines.