Earnings Call Transcript - SHIP Q1 2024

Operator, Operator

Thank you for standing by, Ladies and gentlemen, and welcome to the Seanergy Maritime Holdings Corp. Conference Call on the First Quarter ended March 31, 2024, financial results. We have with us Mr. Stamatios Tsantanis, Chairman and CEO; and Mr. Stavros Gyftakis, Chief Financial Officer of Seanergy Maritime Holdings Corp. Please be advised today's conference call is being recorded today, Wednesday, May 15, 2024. The archived webcast of the conference call will soon be made available on the Seanergy website www.seanergymaritime.com under the Webcast and Presentations section under the Investor Relations page. Many of the remarks today contain forward-looking statements based on the current expectations. Actual results may differ materially from the results projected from those forward-looking statements. Additional information concerning factors that can cause the actual results to differ materially from those in the forward-looking statements is contained in the first quarter ended March 31, 2024, earnings release, which is available on the Seanergy website again, www.seanergymaritime.com. I would now like to turn the conference over to one of your speakers today, the chairman and CEO of the company, Mr. Stamatios Tsantanis. Please go ahead, sir.

Stamatios Tsantanis, Chairman and CEO

Thank you, operator. Hello. I would like to welcome everyone to our conference call. Today, we are presenting the financial results for the first quarter of 2024 and an update of our recent corporate developments. I'm pleased to report that, during the three-month period ended on March 31, 2024, Seanergy achieved record profitability, generating a net income of approximately $10 million in the usual weakest quarter of the year for the Capesize segment. After a volatile 2023, 2024 has started very strongly for the dry bulk market, with the Baltic Capesize Index showing its best first-quarter performance in more than 10 years. Seanergy was optimally positioned to take advantage of this positive market environment, leading to its best-performing first quarter on record. Our fully produced net revenues were $38.3 million versus $18 million in the same period last year, more than double, corresponding to an average time charter equivalent rate of more than $24,000 per day, roughly in line with the current average BCI. The improved terms achieved on the rechartering of vessels over the past quarters, our effective hedging activities, and the fast specification vessels comprising our fleet have proven to be important drivers of our positive commercial performance and important pillars of our long-term corporate strategy. Looking towards the second quarter of 2024, and based on the current FFA levels, we expect our daily TCE to be around $26,400 per day, likely outperforming the Capesize market by a wide margin. Beyond that, for the second half of the year, we have converted about one-third of our ownership days at a fixed daily rate of approximately $30,000. As a general principle during the currently healthy market conditions, we are keen to secure attractive fixed daily rates that can generate high free cash flow and solid returns on capital, and we remain vigilant in that respect. In light of our strong performance and consistent with our commitment to rewarding our shareholders, our Board of Directors has authorized another special dividend of $12.50 for the quarter, in addition to our regular quarterly dividend of $2.50, for a total quarterly dividend of $15 per share. As the year progresses and we gain more visibility on market conditions, we will evaluate the best options to further increase capital returns to our shareholders. We view this as an important priority for Seanergy. To this effect, we have declared $1.60 of dividends, or approximately $30 million since the initiation of our policy in 2022. Given the strong Capesize outlook, we are optimistic that Seanergy is well-positioned to continue executing our clear corporate strategy, which entails rewarding our shareholders generously while growing and renewing our fleet. Now turning to efforts to grow our fleet since the beginning of the year, we have agreed to acquire two more Japanese Capesize vessels built in 2013 and 2012. Specifically, the 2013-built vessel will be delivered promptly, and the 2012 built vessel is expected to be delivered to us between July and October this year. The combined acquisition cost of $69.3 million will be funded through cash on hand and debt. As an indication of the good timing of these transactions, the current combined market value of these two vessels has appreciated by more than 10%. Before I pass the floor to Stavros, our CFO, for his review of our financials, I would like to add that I'm very pleased to see Seanergy operating in a balanced manner within our stated business objectives and have viewed this quarter's strong financial performance as an indication of our long-term corporate strategy.

Stavros Gyftakis, Chief Financial Officer

Thank you, Stamatios. I would like to welcome everyone from my side as well to our first earnings call for 2024. Let us start by reviewing the main highlights of our financial statements for the period. We had another great quarter, achieving record first-quarter profitability as strong Capesize freight rates continue dominating the market. Our net revenue was equal to $38.3 million, more than double compared to the respective period last year, while our time charter equivalent reached $24,100, very close to the average BCI for the quarter. Our adjusted EBITDA rose to $23.2 million during the first quarter, almost five-fold from the respective figure of last year. Our net income was $10.2 million compared to a net loss of $4.2 million last year, which translates to an EPS of $0.50. Moving on to our balance sheet, I am pleased to say that our cash position remained strong and almost intact in the first quarter of 2024, standing at $24.2 million or approximately $1.4 million per vessel. This was achieved despite consistent dividend payments, almost $8 million advances for the announced vessel acquisitions, and the regular debt repayments. With regard to outstanding debt, which stood at $223 million at the end of the first quarter, translating to a modest loan-to-value ratio of approximately 40%. Finally, total shareholders' equity amounted to $241 million as of March 31, 2024. Let's not delve into the refinancing activities we completed in the first quarter. We agreed with one of our close lending partners to enter into three separate sale and leaseback agreements of $58.3 million in aggregate to finance a vessel and partnership and to partly finance the acquisition of the vessel. Under this agreement, the vessels will be sold and subsequently leased back on a bareboat basis for a five-year term, starting from the delivery date of each vessel. Seanergy will retain continuous options to repurchase the vessels at predetermined prices throughout the bareboat charter period. Upon the completion of the bareboat term, Seanergy has an obligation to purchase the vessels for an aggregate amount of approximately $31.5 million. Each financing will bear interest of the 3-month term SOFR plus 2.55% per annum, representing a sizable reduction of approximately 120 basis points compared to the rate of the finance agreement. In aggregate for the three vessels, the financing will amortize over 20 consecutive quarterly installments of approximately $1.3 million per quarter. At the same time, we are in advanced discussions with potential financiers to partially finance the acquisition of our second Capesize vessel, securing favorable terms for Seanergy and minimizing the impact on our liquidity for the completion of this acquisition. The new financings and refinancings are expected to minimally affect Seanergy's loan-to-value, kept at a modest 43% based on the current market value of our fleet and in line with our financing strategy. It is worth noting that Seanergy doesn't have any balloon payment view until the second quarter of 2025. Considering our proactive hedging activities with several charter arrangements I discussed earlier with Stamatios, combined with our prudent financing strategy, we expect consistency on the profitability and liquidity fronts in the next quarter. This can enable us to continue delivering value to our shareholders and rewarding their investment. This concludes my review. I will now turn the call back to Stamatios, who will discuss the market and industry fundamentals.

Stamatios Tsantanis, Chairman and CEO

Thank you, Stavros. For the first quarter of 2024, the Capesize market remained at elevated levels in continuation of the strong market conditions seen in the fourth quarter of the previous year. The strong start runs counter to the usual seasonality and was driven by increased online demand during a time when the supply of ships has been restricted, both due to low newbuilding ordering in the previous years and restricted traffic through the Panama and Suez canal. Brazilian iron ore exports rose more than 10% compared to last quarter, as that country managed its highest export rate since 2019. Chinese port iron ore stockpiles reached a low point in 2023, driving demand for imports and restocking, leading to an increase of about 7.2% year-on-year in 2024. Additionally, coal imports rose by around 13% during a period of low domestic production. For the current year, China's steel production is expected to remain at high levels seen in 2023, with demand driven mainly by manufacturing infrastructure, and amid continued weak real estate market. Outside China, steel production in the rest of the world has been particularly strong over the past six months, lending support to iron ore and Capesize demand, a trend that is expected to continue during the current year. Similarly, India's coal-generated electricity reached record high levels in the first quarter, building on a positive trend playing out over the past few years. Moving on to bauxite, which has had a substantial effect in complementing iron ore cargoes for Capesize vessels. Projections for aluminum demand are generally supportive for the next year due to healthy manufacturing trends globally, while longer-term, aluminum is also likely to play an important role in energy transition. Volume growth is expected to be 8% and 5% higher, respectively, in 2024 and 2025. With the ton-mile effect being even larger as the share of long-term Western African cargoes expands. Beyond the specific Capesize demand, the general dry bulk market is also being supported by strong grain and coal cargo flows amidst the disruption of ship traffic seen in the Panama and Suez canals. This has had a positive psychological effect on our market as well, on top of the marginal improvement in actual market balance. Overall 2024 demand growth for the Capesize cargoes is expected to be about 3% to 4% higher. Given the current momentum, demand is expected to rise in 2025 with projected terminal growth by at least 2.5%. Turning on to vessel supply, the order book for Capesize vessels is at one of the lowest points seen in more than 20 years. Overall, net Capesize fleet growth is expected to be around 1.5% in 2024 and 1% in 2025, which is considerably lower than the respective ton-mile demand growth figures. This is already reflected in the secondhand newbuilding vessel prices that have arisen steadily since last year, as well as the healthy times charter market rates that charters are willing to pay. Before I conclude, I just want to note that we are, of course, aware of George Economou's investment in Seanergy and subsequent complaint against the company and its board of directors. At Seanergy, our priority is executing our strategy and creating value for our shareholders. Indeed, as demonstrated by our results today, the actions we are taking have us well positioned to capture opportunities and reward shareholders, both today and in the mid to long term. Our Board and management team will continue taking actions that we determine to be in the best interest of our company and our shareholders. To that end, we are addressing Mr. Economou's complaint as appropriate. That said, we're here today to talk about our financial results and our strategies, and that's it. To close today's call, we want to emphasize our aim to balance our strategic objectives of rewarding shareholders, taking advantage of accretive growth opportunities, and maintaining a strong balance sheet. We view this approach as the most appropriate to serve the long-term interest of our shareholders when considering the inherent cyclicality of our industry and future capital expenditure dictated by fleet renewal requirements amidst an ever-changing environmental regulatory landscape. With this in mind, we declared one more special dividend while we ended the first quarter of the year with a loan-to-value ratio of approximately 40%, a level for which we view very sustainable through any market cycle. In addition, the actions we have taken to grow our fleet substantially over the past three years with quality assets have strengthened our financial position, which has put Seanergy in a prime position to benefit from a healthy freight market as the Capesize segment enjoys the best demand and supply fundamentals in the dry bulk space. As a result, we expect to generate significant cash flows that will facilitate further shareholder value creation moving forward. That concludes our remarks, and I would like now to turn the call over to the operator to answer any questions you may have.

Operator, Operator

And it comes from the line of Tate Sullivan from Maxim Group.

Tate Sullivan, Analyst

Great. Good day and a great comment and a great sequential increase in the special dividend too. If I may start on the forward hedging strategy with Q2 looking like another quarter-over-quarter increase in the time charter equivalent rate, with what you've done so far. Have you seen stable futures for the second half of 2024, or can you not comment on what you're seeing or what your activity has been so far for Q3?

Stamatios Tsantanis, Chairman and CEO

Well, great to hear from you. The thing is that the futures from time to time are moving completely irrationally and don't reflect the real underlying value of the freight rates. From time to time, we're seeing spikes in the futures. Right now, we have fixed 30% of our fleet for the second half at around $30,000 a day. So whenever we see those spikes, we are ready, and we usually take advantage of those opportunities. We were pretty much at the same levels of the BCI for Q1. We expect to be above the BCI in Q2. As long as we generate and secure a very healthy process for the second half of the year, I believe it doesn't really matter whether you're a bit above or a bit below the BCI. But the most important thing is that we have a very dynamic strategy. So whenever we see those spikes, we monitor very carefully, take advantage of them, and move on. It's as simple as that.

Tate Sullivan, Analyst

And then, I mean, it seems like quite good visibility going into 2025. Given the net Capesize growth you mentioned of 1% in '25, and good ton-mile growth, there have been some other shipping companies that had to close yesterday and this morning talking about more scrapping in '25. Is that going to take place in the Capesize market too? And have you already seen that?

Stamatios Tsantanis, Chairman and CEO

Well, the Capesize segment has the lowest order growth over the last 20-plus years. We have seen some pickup in newbuilding ordering in the last 6 months, but this has not happened in the Capesize segment. Capesize segment ordering has been quite subdued. We don't really expect due to the very big price differential between the second-hand and the newbuilding. I don't really anticipate any immediate ordering, and even if it does, there are no slots available before 2027 or even 2028. So I don't really expect any additional Capesize to be ordered or delivered anytime soon. And that is going to help the market a lot, given that there are always geopolitical incidents happening that are beneficial to trade. I think this will drive a sustainable profit stream that will deliver good returns to our shareholders. As we have pledged many times, when the revenues and cash flow are good, we always take care of our shareholders and give back.

Tate Sullivan, Analyst

And just one follow-up: are there certainly not your fleet, but are there other Capesize ships in the market that are still transporting cargo that are greater than 20 years old? And can you comment on the scrapping activity?

Stamatios Tsantanis, Chairman and CEO

I will give a parallel example. When the tankers spiked a couple of years ago after the invasion of Russia into Ukraine, even older ships built in 2004, '05, and '06 were trading significantly at six-digit freight rate levels. So when the market is good and there isn't availability of supply of vessels, even the older ships trade quite well. I'm aware of certain fixtures right now for 20-year-old vessels and older than 20-year-old vessels, that are in the region of $25,000, $23,000 to $25,000. So it's quite good. I mean, even at the older vessels, they are trading quite well. And they believe that if the market demands additional ships, you're not going to find them in new buildings because they are not enough.

Tate Sullivan, Analyst

Well, thank you very much. Look forward to talking tomorrow.

Stamatios Tsantanis, Chairman and CEO

Thank you, Tate.

Operator, Operator

And the question comes from the line of Liam Burke from B. Riley Financial.

Liam Burke, Analyst

Stamatios, you talked about the macro. You went through the iron ore bauxite. Is coal going to be a positive for you for the balance of 2024?

Stamatios Tsantanis, Chairman and CEO

Yes, it is. And we're seeing very strong volumes. It is a result of two main factors. Number one, you have higher energy needs in Southeastern Asia as well as India, which still relies heavily on coal due to a mega delivery of coal-fired power plants. So we don't really see coal slowing down. What has really helped the coal trade a lot, and we're seeing that in our own fleet is the fact that the supply chain is now scarce. All the coal going from Australia to Europe, which we've had a lot of these trades, now has to go around the Cape of Good Hope. This increased the ton-mile. So demand by itself will continue to be strong. We don't see demand slowing down. The ton-mile effect due to geopolitics is actually helping the market a lot. New factors have been built that are cleaner and better in developing worlds and fast-accelerating growth economies like India need new energy. You can't build nuclear plants in five years or set up windmills all over the place. You need energy and electricity, and coal is the most abundant and cheapest form to achieve this. I think we'll see that continuing for the foreseeable future.

Liam Burke, Analyst

Great. And I should know this, but you gave guidance or your partial guidance for your fixtures in the second half. Do you have any dry docking schedules in the second half that would affect utilization rates?

Stamatios Tsantanis, Chairman and CEO

We have a couple of ships, so it's not really a big dry dock program for the second half of the year. It's a couple of ships which will likely finish very quickly. We are in discussions with the charterers of these ships to install energy-saving devices and paints, which will require a little bit additional time and additional cost that we're now discussing how to split. But this is not going to substantially affect our P&L for the second half of the year, which if it continues like this, is going to be pretty much as expected.

Liam Burke, Analyst

Got it. And I know this sounds kind of nitpicking, but DVOE was slightly up, both sequentially and year-over-year. Is that just normal cost of operations?

Stamatios Tsantanis, Chairman and CEO

That's a great question, and I think I should address it right now for clarity. Among public shipping dry bulk companies, Seanergy has the lowest book value per deadweight, which means we have bought our ships cheaper than most companies. Sometimes the ships require additional maintenance. We have paid less for the ships, but we need a bit more expenses to maintain them better. This is not a matter of inflation or similar factors. Additionally, the regulations in the regulatory environment in the dry bulk space, especially with Capesize vessels, have become much more demanding, which means we cannot really cut down on crew costs, the largest component of direct voyage operating expenses. This requires investment in higher-quality crew members to avoid delays and operational disruptions. This is something we evaluate weekly. In summary, the savings from purchasing our ships at lower prices far exceed the incremental operating expenses, and we have generated significant demand from revenues.

Operator, Operator

Now we're going to take our first question, which comes from Kristoffer Barth Skeie from Arctic Securities.

Kristoffer Barth Skeie, Analyst

Thank you for the good presentation. Especially a really good quarter, both operationally, it's beat across all parameters. I was wondering if you could please elaborate a bit on distributions. You're now paying 30% of profits. Is this sort of a new normal? Or how should we think about distributions going forward? I mean, you're still trading quite significantly below NAV. So how do you weigh that up against the buybacks?

Stamatios Tsantanis, Chairman and CEO

Well, as you know, we have been rewarding our shareholders quite significantly over the last two years since we initiated the dividend schedule. We put it on hold temporarily last year due to bad market conditions when we saw the Capesize rates going down to $3,000 a day. We are cautious. The more we fix the fleet and the more certain we feel about the cash flow, the more our appetite is to reward our shareholders. We started with $0.10 in Q1. We're now doing $0.15 in Q2. We hope that if the market allows, we will continue to expand the dividend payout as much as possible. We don't have any imminent acquisition opportunities, and the ones with great potential have already been funded, so we don't anticipate serious outflows. That said, we need to maintain good cash reserves to avoid market mishaps, and we will continue to ensure generous returns for our shareholders because we feel obliged to do so.

Kristoffer Barth Skeie, Analyst

Right. Great. Got it. And in terms of the acquisition, it's quite low and attractive margin you’re getting now. So I guess your that should have a positive effect also on certain net financials, but sort of into Q2 and maybe Q3, how is the cash effect in terms of these refinancings?

Stavros Gyftakis, Chief Financial Officer

We expect for the financing to minimize or basically nullify the equity component in the acquisition of the vessel. It's like we're buying here with no more equity. Then there's a small equity injection we need to make for the newer ship we have agreed to acquire during this quarter, which is around $6 million. The rent already paid on the balance will be covered by debt. So we don't expect significant outflows to cover the CapEx for the acquisition of these two ships.

Kristoffer Barth Skeie, Analyst

Great. Last question from me. Regarding the market, what are you seeing that might affect or boost the market going into Q3 and Q4? Is it still strong volumes from Brazil, or do you see any other influences moving the market forward?

Stamatios Tsantanis, Chairman and CEO

Well, as a benchmark, 2023 was a very strong year. If we manage to have the same volumes in 2024, that would be outstanding, considering the fact that we have the Red Sea factors closure that has decreased the supply of ships in the water. This is going to escalate because the longer the distances increase, the more the backlog of required supply you'll need later in the year. Of course, geopolitics are sometimes beneficial for the industry, sometimes not. We may see similar situations as in early 2023 when all the locked supply unwound at sea without any delays. Overall, I believe that the demand-supply fundamentals are very favorable. However, due to interruptions in supply, we might see variations either on the high side or the low side. It's part of the Capesize trading dynamics.

Operator, Operator

There are no further questions for today. This concludes today's conference call. Thank you for participating. You may now all disconnect.