Seanergy Maritime Holdings Corp.
Q3 2017 Earnings Call Transcript

Published: 12 Nov 2017

[Operator:]

Thank you for standing by, ladies and gentlemen, and welcome to the Seanergy Maritime Conference Call on the Third 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 advise 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 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 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 of the United States, change in rules and regulations applicable to the shipping industry, and other risk factors including 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 change in events, conditions or circumstances on which any of 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. During the nine months period ended September 30, 2017, which for the drybulk market trading at considerably higher levels compared to the same period last year. The Baltic Capesize Index, BCI is currently more than 3100 points and has averaged at more than 1800 points from the beginning of the year. This is 112% higher than the average of 868 points recorded in the same period of 2016. Our fleet benefited significantly from stronger Capesize rates and this was reflected in our operating results. Net revenues were $18.9 million in the third quarter 2017 and $50.7 million in the nine months period of 2017, up by 119% and 112% compared to the respective periods of 2016. As regards to our operating profitability, EBITDA was equal to $14.2 million and $17.7 million in the third quarter and the nine month period of 2017 respectively while net income was $6.5 million for the quarter of 2017 and net loss for the first nine months of 2017 was $3.1 million as compared to net losses of $5.9 million and $17.7 million for the respective periods of 2016. It is important to highlight that after several quarters, the company returned to profitability in the third quarter of 2017 as part that is attributed to the 2007 drybulk freight market as well as the successful financing at a material discount of one of our bank facilities. Year-to-date in 2017, the drybulk market improved considerably compared to the historical lows in recent 2016. The Baltic Capesize Index has reached levels of more than $20,000 per day since October and a value of five year old Capesize exceeds $33 million. Just to put things into perspective about the Capesize market, the relevant 20 year averages are time charter equivalent of $33,500 per day for the rates, ten times more than the lows of last year and more than 50% higher than the current levels and vessel value of $48 million and that is 1250% more than the lows of last year and also 50% higher than the current levels. As a result, we would like to express our confidence in our ability to further increase our operating income and NAV in this positive environment. I will now discuss some most developments that have taken place so far in the third quarter. Starting off, we successfully completed the refinancing of one of our Capesize vessels with significant profit. This transaction resulted in a gain of $11.4 million as the outstanding loan balance of $35.4 million was settled at $24 million or at a 32% discount. Furthermore, during the third quarter, we entered into a senior secured loan facility for up to $16.5 million with a major European lender to fund part of the aforementioned refinancing. In addition, the company issued a $13.75 million convertible promissory note to Jelco to fund the balance of the refinancing, as well as other loan repayments. As of the date of this release, the company has fully utilized both facility and the note. Turning to our financials, as of September 30, 2017, our shareholders’ equity was $41.4 million, our total cash balance was $10.9 million while total debt outstanding was approximately $223 million. As of the date of this release, our total secured debt outstanding is approximately $217 million. In the third quarter of 2017, our net revenue was equal to $18.9 million, up by 119% from $8.6 million in the same quarter of 2016. The increase is attributable to increase of 54% in operating days and to a 97% increase in our daily time charter equivalent. The daily time charter equivalent earned by our fleet during the third quarter of 2017 was about $10,400 as compared to about $5300 in the third quarter of 2016 due to better market conditions. In particular, our Capesize fleet earned a time charter equivalent of about $11,700 per day, up almost 150% as compared to about $4700 per day in the third quarter of 2016. So far in the fourth quarter of 2017, we have already fixed about 63% of our Capesize ownership days at an average time charter equivalent rate of around $15,000 per day. This marks another 30% improvement on the previous three quarters and we believe that the positive trend is likely to continue as our ships get delivered into new charter contracts within the quarter. In the first nine months of 2017, net revenue was $50.5 million, up 112% from the same period in 2016. Our time charter equivalent date increased by 106%, while operating days were up 35%. The daily time charter equivalent earned by our fleet during the first nine months of 2017 was about $10,000 per day, as compared to $4900 in the same period of 2016, an improvement of 106%. In particular, our Capesize fleet earned an average time charter equivalent of about $11,000 a day. In respect to our vessel operating expenses, our fleet average daily OpEx for the first nine months of 2017 was equal to $4800. Needless to say that we have one of the lowest daily OpEx figures in the industry, while maintaining our fleet at a highest quality. Our low level of operating expenses was very important contributor in our ability to generate a strong EBITDA and operating profit during the quarter and we expect that our persistent focus in investment will continue to place us among the lowest cost owners in the industry. Moving on to the review of the industry conditions, despite the relative tight improvement seen so far, freight rates and vessel values are still far below mid-cycle levels, while the main factors driving this favorable trend are expected to continue in the next few years. As a result, it is estimated that vessel supply growth is unlikely to keep up with demand grow over the next years which suggest that Capesize rates and vessel values will continue to increase. Total fleet growth is largely expected to be less than 1.5% until the end of 2018 while total demand growth is expected to exceed the levels of 3% to 4% driven by increases in long haul iron ore and coal transportation. As an indication of favorable supply conditions, the overall drybulk vessel order book has declined from levels in excess of 60% in 2010 to about 7% to 8% currently which is the lowest since about 2002. For the standard 180,000 deadweight ton Capesize vessel, the current order book stands at 3% of the fleet which is a historical low. Total vessel demolition is projected at about 15.7 million tons for the full year 2017, a significant, but expected decline from the record levels of 30 million tons seen in 2015 and 2016. However, we expect that this increased environmental regulations will force additional tonnage to be removed from the market. And lastly, it should be noted that the total number of active shipyards have declined by more than 50% in the last 70 years which, together with a limited availability of bank financing is further reducing the potential for excessive vessel ordering. Moving on to the demand side, the main factors that will drive long-term growth in the Capesize common transportation are, number one, China, long-term commitment to infrastructural growth, the environmental restrictions in China has forced one-third of domestic miners to shutdown and increased requirements for higher quality raw materials has led to stronger imports from local businesses such as Brazil. Global shortages of coal in many coal-reliant economies like India, porting vendors have critical low levels they save five to ten days, which is critically low. Based on these factors alone, we expect on mile demand to increase by more than 5% in the next years. Certain market developments, the timing conditions on the demand side described above are also reflecting the period charter market as according to productions, we have seen 57 charters with durations exceeding 12 months so far in 2017 compared to 40 in 2016 and 36 in 2015. Average Capesize one year period rates have been around $2600 per day in 2017 compared to about $8200 in 2016 which serves as an important indication of the improvement in the market as charters are willing to pay a relatively healthy rate to local ships for longer periods. As regards to the spot market, after initially picking at around $20,000 per day in March 2017, average Baltic Capesize rates recently exceeded levels around $20,000 per day since October. As a result, I believe that steadily increasing demand for seaborne transportation and limited fleet growth will lead to higher charter rates and vessel values. On a final note, Seanergy is one of the best positioned companies to capitalize on the improving market conditions. We have the strongest focus in the Capesize sector which presents the best drybulk fundamentals. Our Capesize cost base is the lowest in the peer group with no expensive legacy acquisitions. Our competitive breakeven rates allow for significant cash flow potential. We have solid corporate governance with no related per transactions in ship management. Our main strategic objective is to continue our fleet expansion in the Capesize sector with accretive acquisitions as well as to further optimize our capital structure. By these, we will be able to deliver superior returns to our shareholders. On that note, I would like to turn the call back to the operator. Judy?

[Operator:]

[Operator Instructions] Your first question comes from James Jang from Maxim Group. Please go ahead.

[James Jang:]

Good afternoon guys.

[Stamatis Tsantanis:]

Hi, James. Good morning.

[James Jang:]

So, good results. It seems drybulk effect there is really entering the upturn. So, as you move into the seasonally strong fourth quarter, what should we expect in terms of utilization on rates? I mean, are you looking at 96% plus utilization for the quarter? Would that be fair?

[Stamatis Tsantanis:]

Well, generally, yes. I mean, on a fully utilization basis, I think that, the 95% to 96% is a fair rate and I think that currently, on a weighted average basis I think that we may see levels of close to $18,000 a day. Like we said in the release, we are still 63% fixed and we are in the process of fixing some additional long haul 3 to 17 days, but whatever we do, I think by the end of the year, it’s going to be in excess of $18,000 a day.

[James Jang:]

Great. And, so on the Capesize, fundamentals looks good, so this is super. Can you give us some color on what that’s looking like? Where those vessels are trading in which region currently?

[Stamatis Tsantanis:]

Well, the Supermaxes are now trading at around $11,000 a day. One of our Supermax is actually trading at $14,000 a day for a period of three to five months in the Atlantic area with the delivery in the Far East and the other one is just completing a three – profits has made around $12,000 a day. So, I made a mistake, the average is higher, it should be around $13,000. To be honest, we are done over the next trips will be, because we are still quite early in the first voyage – in the voyage of the first ship that I mentioned and the other gets us about a month to 40 days to complete discharge. So right now, it appears that we will continue to have an average of around $11,000, $12,000 on the Supermaxes.

[James Jang:]

Okay, good. And so, what are you guys looking at to do with the Supers moving into I guess, next year? Are you guys looking to fix them on more longer-term cover or are you happy with operating them on the spot market or on just voyage charters?

[Stamatis Tsantanis:]

Well, so far the – what we have done historically in the Supermax is, somewhere in between of what we mentioned. We don’t usually do short-term trades anymore. So whatever we do has a duration of about 40, 50 days. That is, almost two months. In the particular voyage we have – coming is will be as much as five months in one of our Supermax right now. So, I think, we will continue this kind of hybrid chartering strategy for the Supermaxes, let’s say three to six months if we can find short-term periods or something like that. So, no very short-term, no longer term, until we see an expected recovery in the Supermax rates as well.

[James Jang:]

Great. And so, at what level would you look to cover these guys for multi-year charters? What are you comfortable in rate-wise?

[Stamatis Tsantanis:]

Are you defining to the Supermaxes?

[James Jang:]

Yes, on the Supers.

[Stamatis Tsantanis:]

Well, again, I don’t really want to put a number, because, we have seen some credit figures in the past for the Supermaxes. But I think I would be comfortable if I could look in at let’s say around $14,000, $15,000 plus a day the Supers for a longer period of time. But that’s my rough estimate right now.

[James Jang:]

Thank you. That’s great. And on the Capesize front, it was like asset values for the older ships, ten plus years have come down slightly. Have you seen the same thing?

[Stamatis Tsantanis:]

Well, we have not put anywhere ships for sale and we only have two older ships and we are not in the market to purchase any of these older ships. So, I don’t know, I think it’s a matter of big, bid and ask spread for the older tonnage to be honest. They are mostly momentum-driven. I think that the older ships something which is, let’s say between 12 and 15 years old, may as well have very positive returns potentially in the next two to three years. So it all depends on what time – at what point of the curve a potential purchaser we are looking at the particular acquisition. So, that’s what we see so far.

[James Jang:]

Okay, well. That just kind of lead into my next question is, I know you guys favor the more modern five years, around five year old second-hand tonnage. But if the pricing, and let’s say, ten or eleven year vessel becomes more attractive. Would you look to operate something that old or purchase that old?

[Stamatis Tsantanis:]

For additional purchases, no. Generally, the – we are very happy with the two older ships that we have and they have been operating excellently and are very efficient ships. Actually our oldest ship is our most efficient one believe it or not. So, we are totally happy with the ones that we have already. But as far as new purchases are concerned, we would be looking at something more than – something in the region of 4 to 7 years.

[James Jang:]

Okay. All right. Okay, that’s pretty much all I have. Thank you guys.

[Stamatis Tsantanis:]

Thank you, James. Thank you.

[Operator:]

Thank you very much. Our next question comes from the line of Paul Frats from Noble. Please go ahead.

[Paul Frats:]

Hi, good morning, Stamatis.

[Stamatis Tsantanis:]

Good morning, Paul, hi.

[Paul Frats:]

Hi. If I could just follow-on with, you talked about one, the M&A potential, that you are looking 4euro to 7 euro a tonnage. Can you speak to the quality of opportunities out there? As far as, it seems like with assets values also moving up, the timing, the window might be closing and if you could just comment on sort of what you are seeing out there as far as the bid outspread in the second-hand market, that’d be great?

[Stamatis Tsantanis:]

Yes, well, I agree with you that the window is closing and I think that the window of – relatively well priced opportunities is going to close within the next three to six months. However Seanergy is a company that we have been one of the very few Capesize buyers in the last couple of years. We have been offered with a number of opportunities for a lot of service including banks. So, assuming that we would have the capacity to proceed with other deals the company has access to quality tonnage that may not be available in the general market. I am not saying that, we can do things that are let’s say 20% or 30% below the market. But in a event that we can, we can complete deals that can have discount to the current market levels, as well as higher quality ships.

[Paul Frats:]

Yes, great. And then, when you look at the older capes that you have, can you talk – can you just highlight the drydock timing there as far as when those two are going to go through drydocking?

[Stamatis Tsantanis:]

Yes, well, the 2001 deal is going to be drydocked in 2020. So we still have a lot of time ahead of us and one that this 2004 is going to be drydocked in 2019. They both qualified for the voter ballot requirements for the U.S. So that they can call the U.S. – in the second through 2022. So we don’t have any imminent issues from these two ships and we expect them to generate some very good results in the next couple of years.

[Paul Frats:]

Yes, and then, it looks like there wasn’t any drydocking activity in the third quarter. It doesn’t look like there is going to be any in fourth quarter. Can you highlight the timing of any drydocks in 2018?

[Stamatis Tsantanis:]

Yes, we don’t expect to have any drydocks in 2017, for the remaining of the year. For the whole of 2018, and for 2019 only one ship.

[Paul Frats:]

Okay. And, when you look at your debt amortization schedule, I calculate, there has been a lot of recent activity, but I calculate that your debt amortization is about $15 million for 2018. Is that accurate at this point in time?

[Stamatis Tsantanis:]

Well, to be honest, we are in the process of – let’s say, amending certain long transactions and proceeding with some additional financings that we cannot generally disclose. As it stands today, I think that the overall debt amortization for 2018 is going to be around $20 million, but we are working to improve that significantly not only to this amortization, but also the interest expense of the company. That’s all I can say right now.

[Paul Frats:]

Yes, thank you for that color. And that’s in the context of that, I think you re-filed your ATM program in October and I was just wondering if you could timeline any near-term plans to execute on that?

[Stamatis Tsantanis:]

Well, specifically, in F-1 that we filed – I cannot really comment on any operating plans. But what I can say as a company is, in the last year or so, that we have accessed the capital markets, we have performed a very significant accretion for every new dollar that we raised for the company. To be absolutely exact, we have managed to produce about a 107% accretion. So, almost double the $45 that’s got into the company in the last year or so. So, if we are to do any future capital raise, it will certainly be for a very good reason and it will also lead to a very significant accretion on this.

[Paul Frats:]

Yes, appreciate that. And, Stamatis, you had highlighted the bookings for the fourth quarter. I have a – 63% of cape spread, almost $16,000 a day. Do you have any visibility into the first quarter of 2018 yet? Do you have similar figures for first quarter 2018 yet?

[Stamatis Tsantanis:]

Yes. Well, basically, it’s a continuation of existing ones. So, 50%, 63% like I said, they have been fixed for Q4 and about 20% in Q1 which is a continuation of Q4 ones that are longer voyages. However, we are in the process of working at the same rate. We are also working this week on a few more additional fixtures that will be at levels in excess of $17,000 to $18,000 a day and this will for sure, get into the better part of the Q1, because there will be three month voyages that will carry forward in, let’s say until mid of February. That’s all I can say about it right now, because we are in the process of negotiating with various charters for these fixtures.

[Paul Frats:]

Yes, and could you highlight where the current index rate is on a load ship space?

[Stamatis Tsantanis:]

Well, the load ship, right now is turning at around $20,000, $21,000 a day, So, the load ship, as of today, the index is at, let’s say $21,000 somewhat mistaken, the closing half an hour ago. I think quarter-to-date, the load ship must be around $18,500 to $19,000 something like that.

[Paul Frats:]

Okay, great. And, just to highlight, it sounds like while you might lock in super rates about 10% higher, it seems, not to put words in your mouth, but it seems like you have a lot more upside potential on the Cape side and that you wouldn’t be locking in 10% higher from where the current indexes are or could you just comment on sort of your strategy on the Cape size as far as locking in clearly chartering activities picked up a lot as you highlighted.

[Stamatis Tsantanis:]

Yes. We are a lower cost operator and we have a very low acquisition cost. So, generally, our breakeven is quite lower as compared to a number of our peers, which means that we don’t have any immediate need to fix a period of our - a portion of our fleet. However, as 2018, as we get into 2018, and we think that the period rates will improve further, we will certainly fix some additional tonnage on the Cape sizes for longer periods, let’s say, two to three years. So, as a long-term strategy, we want to have about 50% of our tonnage fixed in period charters on 50% to be to remain in the spot market. And what is also very important to show is that, the average of a time charter of a period range for one year that Clarksons reported a few weeks ago was around $14,500, when we have fixed our one of our 16,200 which is much higher than the average. So, whatever we do, it’s certainly going to be very important for a several years and it will more certainly produce a very, very good return.

[Paul Frats:]

And that was also fixed back in June too, right so.

[Stamatis Tsantanis:]

Yes.

[Paul Frats:]

And just, net picky income statement question. It looked like in the last quarter – last year, G&A picked up, should we expect a similar pick up this year looking at the fourth quarter or can you just comment sort of on the near-term G&A expense line?

[Stamatis Tsantanis:]

Yes. Although the pickup with last year was basically a non-cash element. So the majority of what is around about $200,000 of G&A per quarter is a non-cash item and it’s associated with fiscal concerned plan. So there is certainly going to be a slight pickup, but on the cash basis and on a non-cash basis, I would say, there might be an increase which we don’t know yet. But what is important for us is the cash flow perspective and where the overall G&As will remain at levels that we believe are very low for the markets. So, on a cash flow basis, on a cash basis, I would say that our G&A is as a forward-looking statement would be around $1000 to $1100 per day something like that, on a cash basis.

[Paul Frats:]

Great. I really appreciate your time and thanks a lot.

[Stamatis Tsantanis:]

Thank you, Paul, any time.

[Operator:]

Thank you very much. Mr. Tsantanis, there are no further questions. So, I’ll hand the call back to you for closing comments. Thank you.

[Stamatis Tsantanis:]

Okay, Judy. Thank you very much and thanks everyone for joining our call today. Thank you.

[Operator:]

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