Seanergy Maritime Holdings - Q2 2024

Transcript

Operator (participant)

Thank you for standing by, ladies and gentlemen, and welcome to the Seanergy Maritime Holdings Corp. conference call on the second quarter and six months ended June 30, 2024 financial results. We have with us Mr. Stamatis Tsantanis, Chairman and CEO, and Mr. Stavros Gyftakis, Chief Financial Officer of Seanergy Maritime Holdings Corp. At this time, all participants are in listen-only mode. There will be a presentation, followed by a question-and-answer session, at which time, if you would like to ask a question, please press star one and one on your telephone keypad. You will then hear an automated message advising your hand is raised. Please be advised that this conference call is being recorded today, Tuesday, August 6, 2024. The archive webcast of the conference call will soon be made available on the Seanergy website, www.seanergymaritime.com.

To access today's presentation and listen to the archive audio file, visit the Seanergy website following the Webcast and Presentation section under the Investor Relations page. Please now turn to slide 2 of the presentation. Many of the remarks today contain forward-looking statements based on 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 second quarter and six months ended June 30, 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. Stamatis Tsantanis. Please go ahead, sir.

Stamatis Tsantanis (Chairman and CEO)

Thank you, operator. Hello. I would like to welcome everyone to our conference call. Today, we're presenting the financial results for the second quarter and first six months of 2024, and an update on our recent corporate developments. We will commence our call with a brief overview of our main highlights for the second quarter, which are fully aligned with our corporate strategy, namely maximizing shareholder returns while growing our fleet and maintaining a healthy balance sheet. Following a strong start to the year, the second quarter of 2024 marked another record in our profitability with a net income of $14.1 million. Seanergy's focus as a pure-play Capesize owner proved advantageous as our segment outperformed the smaller dry bulk vessel classes. The Capesize market continued its positive momentum with a Baltic Capesize Index averaging about $22,600 per day.

During this period, our daily time charter equivalent of $26,600 a day outpaced the Capesize index by an impressive 18%, thanks to our active commercial strategy, resulting in quarterly net revenues of $43.1 million, up significantly from $28.3 million in the same quarter last year. For the six months ending June 30, we reported net revenues of $81.4 million, a substantial increase from $46.4 million in the same period last year, based on a daily time charter equivalent of about $25,400 a day, which exceeded the Baltic Capesize average again. Our profit for the six-month period was $24.3 million. Given these favorable market conditions and our strong financial performance, our board of directors has revised our dividend policy to further enhance our focus on returning capital to our shareholders.

Details of this policy will be discussed in the next slide. For the second quarter, our cash dividend will be $0.25 per share, up from a combined $0.15 per share in the first quarter of the year. Additionally, we have repurchased common shares worth approximately $1.8 million since our last update, bringing total stock repurchases to $2.7 million since the beginning of the year. We remain optimistic about the Capesize market and expect to continue generously rewarding our shareholders in the upcoming quarters. In regards to our growth initiatives, during the second quarter, we took delivery of the Iconship, a 2013 Capesize vessel built in Japan, acquired earlier in the year for $33.6 million.

As is typically the case with our ships, the Iconship has commenced employment under an index-linked time charter and is earning a premium to the Baltic Capesize Index. Additionally, we expect to take delivery in September of one more Capesize vessel built in 2012 in Japan. It is encouraging to note that both vessels have appreciated in market value since our acquisition, underscoring once again the good timing of our transactions and the strong Cape fundamentals in play. I would also like to highlight that following $58.3 million in financing and refinancing transactions completed during 2024, we ended the second quarter with a modest fleet loan-to-value ratio comfortably below 40% when netting from the debt our robust cash reserves. Let's move on to slide 4 to discuss our new dividend policy.

We have introduced a variable formula policy to further align our dividend distributions to the Capesize market conditions while affirming our commitment to higher shareholder returns. Our quarterly dividend will be based on an operating cash flow generated during each quarter, while considering our debt service and other commitments. As mentioned earlier, the cash dividend for the second quarter will be $0.25 per share, representing approximately half of our operating cash flow, net of the debt service for the quarter, and will be paid to all shareholders of record as of the 27th of September, on or about the 10th of October. Slide 5. In the next slide, we highlight our firm commitment to shareholder returns.

Since the fourth quarter of 2021, we have paid $1.85 per share in cash dividends and repurchased $6 million in common shares and $36.9 million in convertible notes and warrants. Looking ahead, our new dividend policy, aligned with the current Capesize market outlook, can deliver attractive capital returns to our shareholders. This sets Seanergy apart from many of our dry bulk peers, as our pure-play Capesize fleet outperforms smaller vessel sizes. We are dedicated to rewarding our shareholders accordingly. Lastly, I have made additional personal investments by purchasing common shares and call options on Seanergy stock on the open market, reflecting once again my strong confidence in the company's future performance. Slide six.

Moving on to our commercial highlights, our fleet's daily time charter equivalent outperformed the Baltic Capesize Index by 18% in the second quarter and by 8% over the entire six-month period. This strong performance was primarily driven by our proactive commercial strategy, including a well-timed hedging plan. For the second quarter, we secured rates of approximately $28,000 a day for half of our operating days. Additionally, half of our vessels are equipped with exhaust gas scrubbers, enhancing earnings, and many of our ships have favorable fuel consumption specifications based on earlier installation of energy-saving devices and our proactive maintenance schedule. For the third quarter of 2024, based on the current FFA levels, we expect our daily time charter equivalent to be equal to approximately $25,500, roughly in line with the Capesize Index.

This reflects the fact that we have fixed approximately 42% of our operating days for that period at a gross rate of $29,500. Overall, we have currently fixed 39% of operating days for the second half at a gross time charter equivalent rate of $29,300. Before passing the floor to Stavros, I would like to add that I'm particularly pleased to see Seanergy operating in a balanced manner within our stated business objectives, and I view this quarter's strong financial performance as a testament of our long-term corporate strategy. Stavros, please go ahead.

Stavros Gyftakis (CFO)

Thank you, Stamatis, and welcome everyone to our earnings call. Let's begin by reviewing the key highlights of the financial statements for the second quarter and the six-month period ending June 30, 2024. We had another outstanding quarter, achieving record profitability, supported by what seems to be a resilient Capesize freight market. Our net revenue for the quarter reached $43.1 million, marking an approximate 50% increase compared to the same period last year. Additionally, our adjusted EBITDA rose to $28 million, approximately $12 million higher than the same period last year. Our net income was $14.1 million, compared to $700,000 last year, translating to an EPS of $0.68. For the six-month period, our net revenues and adjusted EBITDA reached $81.4 million and $51.2 million, respectively, significantly surpassing last year's performance.

Our profitability in the first six months of 2024 set a record for the first half of a year. At the same time, our net income was $24.3 million, compared to a net loss recorded in 2023. Our EPS for the six-month period was $1.18. Moving on to our balance sheet, I am pleased to report that our cash position at the end of the quarter stood at $38.2 million, or approximately $2.1 million per vessel. This was achieved despite consistent dividend payments, some share buybacks, and nearly $4.5 million advance for the announced vessel acquisition and our regular debt repayments. Our outstanding debt stood at $253 million at the end of the second quarter, resulting to a debt-to-capital ratio of approximately 50%, calculated against the total assets of the company.

I will provide more details on our financings shortly. Finally, total shareholders' equity amounted to $254.7 million as of June 30, 2024. Let's now turn to slide 8 to discuss our profitability performance. Our hedging activities through FFA conversions and our overall commercial approach once again allowed us to outperform the Capesize market. Our second quarter TCE rose to $26,600, while our first half TCE reached $25,400, surpassing the BCI, as Stamatis explained earlier. Our adjusted EBITDA for the first half was $51.2 million, more than double compared to the same period in 2023. Meanwhile, our adjusted EBITDA margin was maintained at around 60% for another quarter, demonstrating our effectiveness in converting revenue into operating profit.

Looking ahead, we're optimistic that we will continue this trajectory in the second half of the year, while our ongoing investments in fleet renewal and operational efficiency are expected to further enhance our profitability. Additionally, we're closely monitoring market trends to capitalize on emerging opportunities and mitigate potential risks. Moving now to slide 9, let's delve into more details about our debt profile. The health of our balance sheet is reflected in a modest loan-to-fleet value ratio of approximately 40%, with our debt per vessel currently standing at about $14 million, almost $20 million less than the average market value of our ships. With a cash reserve of $38.2 million, we are well-equipped to manage our financial obligations and seize new opportunities.

This strong liquidity position, combined with our prudent financial management, ensures we can continue to support our strategic initiatives and maintain operational flexibility, while allowing us to distribute a significant part of our net operating cash flow as dividend to our shareholders as per our revised dividend policy. On our financing activities, during the first six months, we completed three separate sale and leaseback agreements totaling $58.3 million with AVIC, a long-standing partner of the company on the financing side. These agreements were used to refinance the existing debt of the Hellasship and Patriotship, and to partially finance the acquisition of the Iconship, as discussed in our previous call.

Additionally, we are already in the process of concluding a transaction for the partial financing of our new, already announced Capesize vessel at favorable terms for Seanergy, which shall see the completion of this acquisition with minimum impact on our liquidity. Our latest transactions have already reduced our daily interest cost and lowered the weighted average margin of our financings to approximately 2.85%. This is also reflected in our interest expense, which has reduced by approximately $700,000 in the first six months of 2024 versus the same period last year. We anticipate further improvements over the next 12 months, as some of our older and higher-priced loan facilities are maturing, and we expect to be able to execute the refinancings at lower margins and improved overall terms.

Finally, as we move to slide 10, I would like to reiterate that Seanergy is well-positioned to fully benefit from any upward movement in the Capesize market. The current trends in our market indicate a potential for increased day rates. Therefore, we are closely monitoring the activity and are ready to react to maximize our gains. At the same time, our comprehensive risk management strategies are designed to protect our revenue and cash flows against market volatility. As Stamatis mentioned earlier, we have proactively hedged 39% of our available days for the second half. If Capesize rates in the second half reach current FFA levels, we anticipate our EBITDA for 2024 will rise to approximately $113 million. The anticipated rise in EBITDA will allow us to enhance shareholder value through increased dividends and potential share buybacks. This concludes my review.

I will now turn the call back to Stamatis, who will discuss the Capesize market and industry fundamentals. Stamatis?

Stamatis Tsantanis (Chairman and CEO)

Thank you, Stavros. The positive momentum from the start of the year continued into the second quarter, with the Cape index averaging $22,600 for the period per day. In recent months, the market has remained relatively stable at high levels, thanks to a strong volume of cargoes, limited fleet supply, and psychological factors stemming from adverse geopolitical events. Overall, the low Capesize order book suggests limited fleet growth, which is likely to be outpaced by the growth in ton mile demand. In the first half of 2024, Brazilian iron ore exports rose by 6% compared to last year, driven by high prices and China restocking, allowing Vale in Brazil to increase exports significantly. Meanwhile, Guinea's bauxite exports increased by 14% from the first half of 2023, tightening the Atlantic market. This increased ton miles absorbed more ships, impacting the Capesize market.

China's coal imports rose by about 12% year to date due to strong energy demand unmet by domestic production. China's steel production is expected to fall slightly, with demand driven by manufacturing, infrastructure, and exports. Globally, steel production remains stable, with notable growth in Europe. Iron Ore export seasonality suggests higher second half exports, with major miners predicting a 6% increase over 2023 levels for the second half. We have fixed approximately 40% of our second half days at very favorable rates, as I mentioned before, insulating our financial performance. For the bauxite trade, long-term aluminum demand is strong, supported by projected cargo volume growth of 11% in the second half of 2024, and an annual increase of about 12%.

Looking ahead, the Simandou Iron Ore Project in West Africa, starting in 2026, will boost Atlantic cargoes, enhancing ton-mile demand for Capesizes. Despite short-term volatility, global steel consumption has historically grown, and major iron ore miners' investments in high-quality resources affirm our positive long-term outlook for Capesize demand. Turning to supply. The order book for Capesize vessels is at its lowest point in decades. Net Capesize fleet growth is expected to be approximately 1.8% in 2024, and 1.3% in 2025, both below the growth in ton-mile demand. Strict environmental regulations, high newbuilding prices, and limited shipyard slots create a challenging environment for large vessel orders. This suggests fleet growth will lag behind demand for an extended period.

As a result, we expect the Capesize market balance to remain favorable for owners, ship owners in the coming years. To conclude, Seanergy is strategically positioned to benefit from the positive long-term trends in the Capesize market. Our commitment to our business plan is centered around three main objectives: delivering substantial and attractive shareholder returns, capitalizing on opportunities to grow our fleet through projects that offer high returns on capital, managing our growth with an acute awareness of the Capesize market's high cyclicality, ensuring the sustainability of our balance sheet under all market conditions. With these key principles, I would like to close our call by stating that our company has performed strongly in all these key areas. Thank you very much for listening. Operator, please take the call.

Operator (participant)

Thank you. As a reminder, to ask a question, you need to press star one and one on your telephone and wait for your name to be announced. Once again, it's star one and one on your telephone and wait for your name to be announced. Please stand by while we compile the Q&A roster. We are now going to proceed with our first question. The questions come from the line of Liam Burke from B. Riley. Please ask a question.

Liam Burke (Analyst)

Yes, thank you. Stamatis Tsantanis, how are you today?

Stamatis Tsantanis (Chairman and CEO)

Hello, Liam. Good morning. We're very good, thank you.

Liam Burke (Analyst)

I had a question on asset purchases. The last two Capes you bought, well, they're obviously Capes. You pretty opportunistic, and they're certainly worth more than when you bought them. How is the asset pipeline out there? Can you see any possibility of being able to add any more vessels?

Stamatis Tsantanis (Chairman and CEO)

The answer is yes. There might be a couple more opportunities over the next 3-6 months. I'm not saying 5 or 10. I'm trying to be conservative because, again, our priority is to maximize shareholders' returns and, of course, grow the fleet in a very conservative manner. We're at a very good pace right now between, let's say, 19 and 21 Capesize vessels and Newcastlemaxes. I believe that's a very good number for now, and the important thing is to maximize the return on a per-share basis. So I'm pretty confident that we will be able to source 1, 2, maybe 3 more ships over the course of the next 3-6 months. And I strongly believe that these opportunities will be very, very well priced compared to the current market levels.

That's all I can say for now.

Liam Burke (Analyst)

That's fair enough. Just to tie that discussion into your dividend payout now, it's a pretty clear-cut formula on operating cash flow, but I'm presuming that additional asset purchases are in the mix once you get past paying the dividend and servicing debt?

Stamatis Tsantanis (Chairman and CEO)

Well, I mean, we'll try and maintain, you know, the operating cash flow as, you know, the guiding principle, to put it this way. And I'm quite confident that the equity required for the acquisition of the ships can be absorbed one way or another. So I don't think that, you know, unless, which I doubt it, we come across, let's say, opportunities for 10 ships. If it's one, two, or maybe three ships over the course of the next three to six months, the equity component required for these acquisitions is not going to affect, you know, the dividend formula.

Liam Burke (Analyst)

Great. Thank you, Stamatis.

Stamatis Tsantanis (Chairman and CEO)

You're very welcome. Have a great day.

Liam Burke (Analyst)

Thank you. You, too.

Operator (participant)

Thank you. We are now going to proceed with our next question. The questions come from the line of Kristoffer Barth Skeie from Arctic Securities. Please go ahead. Your line is opened.

Kristoffer Barth Skeie (Analyst)

Hi, guys. How are you?

Stamatis Tsantanis (Chairman and CEO)

Hello. We're very well. Good afternoon.

Kristoffer Barth Skeie (Analyst)

Good afternoon, and thanks for good market comments, as always, and congrats on a solid quarter. It seems like the equity market is very pleased by the new dividend policy. Can you share some more color on the threshold regarding the policy and sort of how obviously you're paying, you're going to pay quite a chunky distributions going forward, with close to 50% of free cash flow to equity. But sort of how do you look at that compared to buybacks? Because you're still at a quite a discount to intrinsic value.

Stamatis Tsantanis (Chairman and CEO)

That's, that's a great question, and thank you for that. We are looking into the buybacks, of course. The only problem with the buybacks is that there is a certain limit up to how much stock we can, you know, proceed with buybacks because of the daily trading, you know, thresholds that we have. So dividend for us is the best way to return capital to the shareholders, and it's the more fair, transparent, and straightforward, to be honest, so we will continue on the dividend course. If you want to have a guidance, a good guidance for future dividends, I believe that the Q2 dividend formula is a very good guidance.

I don't see that changing materially over the course of the next quarters unless something super major happens, you know, something seismic or you know, adverse change or something like that. On a normal course of business, I would expect the Q2 to be a good guidance for your future reference, if that makes sense.

Kristoffer Barth Skeie (Analyst)

Perfect. Yes, absolutely. And in terms of the market, could you share some color on sort of short-term rate expectations as we're soon approaching sort of the seasonal high, and, what's going to drive sort of the, the uptick, in the short term? And in the long term, if you could share some more, more color on Simandou, obviously, you mentioned it, and we agree that we think it will be quite a ton mile booster. But, but are you, are you seeing that BHP or other miners are in the market and, open to lock in tonnage, to, to secure sort of, these volumes? And, and what's your view and impression on these volumes? Will it replace Australian ones, or will it come in addition?

As of now, how do you view that dynamic?

Stamatis Tsantanis (Chairman and CEO)

Well, that's a great question, and thank you for asking that. Despite the overall negative noise that we hear in the market, and all this negativity coming across from selloffs here and there, the fundamentals for the dry bulk market, and especially for the Capesize, have not really changed at all over the course of the last 2-3 months. For example, the guidance from the big miners for the second half are all higher than the first half. So if we believe that the guidance from Vale, Rio Tinto and BHP is accurate, they will be exporting 5%-7% more cargoes in the second half of the year, which I believe it's very, very good news.

The inventories of China have started after, you know, quite some time, instead of a built-up, to start reducing, which is, of course, very good news, you know, for demand for iron ore and the stockpiles in China. As far as supply is concerned, nothing has really changed. I mean, there has not been any material newbuilding Capesize deliveries. On the contrary, the global Capesize fleet is getting older and older by the day. The Red Sea is still closed, so the coal demand is still quite strong. Aluminum and bauxite demand is still quite strong. So I don't really see the fundamentals changing, as you say, in the short term.

On the contrary, I believe that the market may have bottomed or may be bottoming, and we may see an uprise, sorry, an uptick in the market over the the course of the next few weeks. That's, again, a very, very careful estimate I want to make right now, and a very careful prediction, all things being equal. But for the commercial arena that we see every day, you know, there, there's a big struggle for the miners to secure ships, like you very well said, at reasonable prices on a $1 per ton. So I see a lot of push, you know, upwards, which is trying to be contained here and there with various ways. So I'm generally very, very conservatively optimistic.

Kristoffer Barth Skeie (Analyst)

Okay. Thanks a lot, Stamatis, and have a great day.

Stamatis Tsantanis (Chairman and CEO)

You're very welcome. You, too.

Operator (participant)

Thank you. As a reminder to ask a question, you need to press star one and one on your telephone and wait for your name to be announced. It's star one and one on your telephone. Thank you. We are now going to proceed with our next question. The question comes from the line of Tate Sullivan from Maxim Group. Please go ahead. Your line is opened.

Tate Sullivan (Analyst)

Oh, thank you. Hi, Stamatis. Hi, Stavros. On the freight balance on the FFAs going forward, is the market liquid enough? Is it a six-month forward market, or can you start to lock in some rates for 2025 yet, please?

Stamatis Tsantanis (Chairman and CEO)

Good morning, Tate, and thanks, you know, for listening in to our call. We believe that the market of the FFAs is quite liquid, so right now we're very, very well hedged for the second half of the year. About close to 40% of our fleet is covered at what we believe to be very strong rates. If we see peaks in the next few weeks or even months going forward, we will, of course, you know, push the trigger and fix some more ships at this high rate. So there is plenty of liquidity if we want to do that. For the time being, we're just waiting still, and if the opportunity comes across, we're just gonna take it.

Tate Sullivan (Analyst)

And then I was looking at, in your press release, the charterer list for your fleet. In this current good market with a good outlook, do most of the charterers... Do you usually extend the existing charter, existing contracts with the current charterers, or will there be some turnover?

Stamatis Tsantanis (Chairman and CEO)

Generally, we tend to extend with the same, with the same charters. One of our ships we have actually fixed for a period covering 2025 as well, our most recent acquisition. So, you know, we are optimistic that we will continue our excellent relationship that we have with our current charters and all these long-term partnerships that we have established over the course of the previous years.

Tate Sullivan (Analyst)

Great, and great to see the dividend policy and the repurchases. Thanks very much.

Stamatis Tsantanis (Chairman and CEO)

Of course. Of course. Thank you, Tate.