Q3 2022 Seanergy Maritime Holdings Corp Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the synergy Maritime Holdings Corp, third quarter, and nine months 2022 financial call.
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After the speaker's presentation, there will be the question and answer session.
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Please be advised that today's conference is being recorded.
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.
Information concerning factors that could cause the actual results to differ materially from those in the forward looking statements is contained in the third quarter 2022 earnings release, which is available on the scene that your website.
With WWE the synergy every time dot com I will now like to turn the conference over to one of your speakers today.
Please go ahead Sir.
Hello.
I would like to welcome everyone to our conference call.
Today, we are presenting the financial figures for the third quarter and the first nine months of 2022.
We're also pleased to announce a distribution of another cash dividend this quarter, our fourth consecutive cash dividend.
The second half of 2022 has not lived up to our initial expectations and the challenging market conditions affected negatively the freight rates of the capesize sector.
We attribute the slowdown to the following factors.
<unk> corporate policy and continued lockdown, which have resulted in a self imposed slowdown of industrial production.
The conflict in Ukraine that created providers trade disruptions as well as global inflation and a slow economic growth worldwide.
Astley, then widening or vessel congestion improve fleet efficiency, and thereby increased effective vessel supply.
Notwithstanding these conditions the third quarter was yet another profitable quarter for <unk>, thanks to the flexibility of our fleet and our smart commercial strategy with.
We continue to believe that the market weakness will be shortly and we expect within the first half of 2023 and sustainable recovery of the capesize sector with a long duration.
<unk>, our financial performance during the third quarter, we recorded net revenues of $34 million and adjusted EBITDA of $19 million, whether or not income was equal to $7 1 million.
For the first nine months of 2022 net revenues reached $96 5 million.
Almost equal to the previous year respective period.
Adjusted EBITDA was $53 1 million.
While net income amounted to $16 7 million.
Our daily time charter equivalent for the third.
Water was about $30600, representing a premium of over 50% compared to the average Baltic Capesize index for the period attributed mainly to our freight hedging activities and some profit sharing from our scrubbers in the nine months period, where to the daily time charter equivalent of $21000.
Representing a 25% premium over the PCI.
Compared to the corresponding nine month period of 2021 attempt at the equivalent has declined by a mere 10%, which compares very favorably with a 44% drop in the Baltic Capesize Index looking ahead to the fourth quarter of 2022, we have fixed approximately 70% of our open spot days at a daily rate of 15000.
Which again compares very favorably with the Baltic index average of $14700.
As regard to <unk> guidance for the fourth quarter.
At the current FFA rate for December 4th quarter time charter equivalent would be equal to about $16600.
On a more positive note more and more of our long term charter contracts moving to the optional periods. So our fleet will be earning a largest share of the profit arising from the use of the scrubbers.
This is expected to have an additional positive impact on efficacy in the future quarters.
In terms of commercial updates four of our vessels secured new time charter employment or extended existing agreements since our last call. All these time charters are linked to the PCI and were concluded at peak or increased premiums over the index compared to the expired agreements.
In addition, we managed to improve the scrubber profit sharing scheme for a scrubber fitted vessels that were due for renewal.
Moving on to corporate and financial developments, we continued our reward commitment to our shareholders with the declaration of another regular cash dividend of $2 five per share for the third quarter with a total cash dividend payout, reaching $32 5 million.
$12 five per share over the last four quarters.
This represents a dividend yield of approximately 25% based on the closing price of our shares as of yesterday.
This excludes the distribution of United Maritime service in the summer, which has had a very successful of course over the last months.
In addition, we repurchased convertible notes warrants and shares during the same period, resulting in a total rewards initiatives of $49 2 million.
In fact, our objective to create and distribute value to our shareholders.
In addition, we have recently launched a tender offer to purchase our class a warrants aiming to reduce the risk of potential dilution from legacy selling instruments.
Also personally continued by open market purchases, which reflects my strong confidence in the company and its prospects.
Selling a $5 million buyback program authorized at the end of the second quarter, we have not conducted any buybacks to date as we prioritize consistency on a dividend distribution from our.
Our intention is to utilize the whole available amount for the repurchase of our outstanding convertible notes and the classic warrants through the tender offer in the coming months.
On the financing front established will continue in a minute to discuss we refinanced the only remaining 2022 loan maturity that was due in December with a new facility at a considerably lower margin.
As a result, there are kind of in the northern maturities until November 2023, we remain committed to continuously improving our capital structure of our company, while ensuring sufficient financial flexibility to deal with the capesize market volatility and our ability to take advantage of potential opportunities if vessel advisors collect credit.
I will now pass the call to our CFO <unk> <unk>, who is going to discuss more thoroughly our financial results I will come back to the call at the end for the market update. So several please go ahead.
Thank you Samantha and welcome everyone to our earnings call, let's start by reviewing the main highlights of our financial statements for the third quarter and nine months period that ended on September 32022.
During the quarter, we recorded net revenue of 34 million decreased from $48 2 million in the same quarter of 2021. This is Doug <unk>.
Flex is slowly keeps as market conditions that prevailed in the third quarter of 2022 as elaborated previously both commodities, which caused our daily time charter equivalent to decline similar percentage wise to $20614 $250764.
Adjusted EBITDA and net income for the third quarter were equal to 19 <unk>.
Seven 1 million respectively.
The adjusted quarterly figures.
The $2 8 million noncash gain related to the spinoff of the global shift to United Maritime in July .
For the nine months period, net revenues was $96 5 million compared to $96 4 million in 2021 with increased fleet size compensating for the decline in the time charter equivalent on year over year basis, more specifically, our daily time charter equivalent for the nine month period was 21000.
Compared to $23400 in the corresponding period of 2021 adjust.
Adjusted EBITDA in the nine months period of 2022 increased to $53 1 million from $51 4 million in the same period last year.
Net earnings would equal to $16 7 million versus $20 7 million last year.
On a us GAAP basis earnings per share for the quarter nine months periods will forward and 10%, respectively, highlighting a profitable performance under Capesize data eight that we considered to be below historical average or mid cycle levels.
Operating expenses, excluding <unk> expenses incurred in connection with vessels that entered the fleet in the subsequent period were $6875 per day per vessel in the first nine months of 2022 <unk>.
Continued COVID-19 related expenses, especially on the crew and forward influence and inflationary pressures on cost of materials and services globally.
Correct impact on Opex in.
In addition included in this figure it out also the cost related to the transfer of certain vessels in our in house management platform, which we expect to benefit the opex side in the long run.
Lastly, the increase is partly driven by increased repair and maintenance costs incurred from the bulk of our maintenance program, which ensures that we obtain satisfactory right operating across our fleet.
The priority placed on environmental efficiency required proactive actions on our part to ensure our ability to provide quality service to our customers with minimal off hire days and over time, such expenses are rewarded with three new charter rates and higher asset values overall in general we expect our operating.
Expenses to <unk>, if not improve from this point onwards it.
In terms of Capex going forward. We are pleased to have already completed our ballast water installation program with 100% of our fleet complying and platform. We have one vessel dry dockings in 2023 with an estimated capex of about 800000 to a.
With regards to our balance sheet. We ended the third quarter of 2022 with $25 million of cash and $233 million of senior debt outstanding.
That translates to approximately $30 million of debt outstanding per vessel.
Against an average market value of about 28 million meaning.
Meaning that the average loan to value across our fleet is below 50%.
It is important to note that our net debt is covered by the scrap value of our fleet, which amounts to approximately $290 million at current scrap prices fell.
Credit to lease in the fourth quarter, United Maritime we deemed the CDC cheap preferred shares held by synergy, which increased our cash position by $10 6 million. In addition to the preferred dividends of about $170000 received earlier in the same quarter.
Turning to our financing activity since our last update in October we entered into a $28 million loan facility with Danish you finance for the refinancing of the Deadness outstanding other our union credit facility, which matures in December 2022 venues.
The new facility has a term of five years and the interest rate margin of two 5% a significant improvement compared to the three 5% margin of the previous facility taking into account the repayment of the old facility. The refinancing resulted in a net cash inflow of approximately $4 4 million. Following this.
Transaction, our next loan maturity is $14 million balloon scheduled for November 2023 executed by one 2011 built scrubber fitted vessels.
We have successfully addressed all remaining loan maturities for the current year, while strengthening further our cash position, which will allow us to navigate through a seemingly softer market environment, which we nevertheless expect to be temporary while at the same time, we'll continue to evaluate opportunities to expand and renew our fleet with this.
Concludes my review I will now turn the call back some ip's, who will discuss the market and industry fundamentals thematic.
Thank you Sabra.
It is now elaborate on the capesize demand and supply fundamentals.
As I mentioned in my introductory comments earlier in this call. The Capesize freight market in 2022 proved quite disappointed the average level of the Baltic Capesize index for the first nine months of the year was approximately $16600 with a low of 2500 per day in late August and a higher effective.
200 in May with a third quarter being the weakest in the year, so far which is unusual and the weakest third quarter of the last six years. The main reasons were the following.
The continued lockdowns in China resulted in a self imposed slowdown of industrial production.
In addition, the conflict in Ukraine that created virus trade and disruptions as well as the global inflationary pressure and slow economic.
Economic growth lastly, in widening of vessel congestion, improving fleet efficiency, and thereby increase effective vessel supply. However, the historically robust vessel supply fundamentals as well as the gradual improvement in Chinese infrastructure industry allow us to be confident that the <unk>.
The market recovery will occur in the coming quarters.
From a vessel demand viewpoint third quarter was a rather odd period for the Capesize sector. While trade volumes are always overall, the freight rates of Cape sizes decline as you mentioned a major reason for the lower freight rates was the reduced port congestion globally.
Specifically in China Port congestion declined by an estimated 15% during the third quarter, adding more vessels in the open market, which in turn applied pressure on freight rates.
However, recent data from China is showing a slow but steady improvement in industrial production as illustrated by key indicators, such as investment in infrastructure and excavator and heavy machinery sales.
Coupled with the recent news about additional economic support measures and the ongoing easing of the Covid restrictions makes us feel quite optimistic.
Furthermore, coal is expected to continue supporting the capesize sector with trade flows likely remaining healthy amid Europe's energy supply crisis caused by the Russia, Ukraine conflict.
Meanwhile, we expect that the bulk of Russian imports during the third quarter will further boost ton mile demand as Europe has started to increase imports from longer haul suppliers.
Moving on to vessel supply figures are extremely encouraging for the capesize sector.
The new vessel order book currently stands at the lowest point over the last 20 years new.
New vessel deliveries are at a meager 172% per annum, which is lower than we expected scrapping rate.
The spread of a new building contract compared to a 10 year old ship the price of the 10 year old ship is at a multi year multiple so new orders do not make financial sense as this huge premium cannot be amortize. Moreover, the certainty of the environmental regulations adds an additional region to the relaxed.
Of new orders.
We also see a rising.
Trend in vessel demolition volumes as we have seen 17 units being sent for scrapping this year, so far compared to 14 in 2021 full year.
One of the most important issues that will affect the vessel supply in the coming years is introduction of the excite and CIA regulations in January 2023, which is effectively next month, while the ESI has a one off effect.
We'll have a progressive impact of the global fleet.
A combination of these regulations will be a continuous speed reduction that will effect, one way or another the majority of our capesize vessels.
The effective vessel supply will start to contract in the following periods. We believe that the effect will be more severe in the next few years and this has been grossly underpaid by a number of market participants.
The healthy vessel supply fundamentals combined with the gradual improvement of demand in 2023 will lead to a positive capesize market in the near future synergy is in a solid position to endure Amy low points of the economic cycle and very well placed to benefit from the upside in the market.
As a closing remark.
Firmly believe that the worst part of the Capesize downward trend will soon come to an end and we should expect much brighter days ahead.
That note I would like to turn the call over to the operator and answer any questions you may have.
Operator, please take the call. Thank you.
Okay.
Thank you as a reminder to ask a question you will need to press star one.
One one on your telephone.
To be announced this time, Bob will compile the Q&A this will take a few moments.
Now we're going to take our first question.
And the question comes from the line of Tate Sullivan from Maxim Group. Your line is open. Please ask your question.
Hello, Hello. Thank you. Thank you good day.
<unk>, it's Scott.
You provided some detail on the scrubber profit sharing schemes in the contracts that you announced so far in sport Q22 can you give more.
Details of how those work that those managed by.
The contract.
Customer on those contracts such as Glencore.
The specifics.
Cash schemes within those profit sharing schemes. Please.
Okay.
Hi, good morning, how are you.
Thank you.
Very well thank you so.
First of all the agreement. The initial agreement was signed back in 2019, and who had an initial period of that is now coming to Atlanta, and we're getting into the optional period.
The charters have the option to extend the contract now in the optional period synergies has profit participation of about 50% on all of these scrubber installations.
That the charterers pace or back in the day 2019, and 2020. So now we're going to start to see the benefit the real benefit without having invested for those scrubbers any equity ourselves. So we estimate at a spread of about.
$250 <unk>.
It'll be in the region of two to $2 $5 million per quarter arising from leaders of this capex. So it's quite substantial for the company, especially for something that we didn't.
Allocating additional capital for.
Okay. Thank you and then.
On the warrant tender offer to you announced earlier this week should we look at that as a form of repurchases or what made you decide to go forward.
The tender offer.
Well again, it's part of our overall are required to set a buyback program.
So we're using some capital.
Two.
Purchased back.
Some remaining legacy warrants that are outstanding and May have some dilution effect in the future. We don't really expect them to have so it's a good opportunity to clean up the capital structure without allocating any significant capital on that so basically.
The buyback initiatives of the company.
To clean up the capital structure as much as we can.
Okay and then.
Did I hear you mentioned that have you tracked heavier excavator and heavy heavy machinery sales in China can you give mark where are those data points from is that what you are saying.
Yes, we do I mean, we have local intelligence in China from various sources and we see that the sales of excavators in heavy machinery.
Has been on the rise which means that the government is.
Funding infrastructure projects more and more and we believe that this effect combined with the.
Hopefully soon the reopening of the economy is going to drive our client fracture and new construction investments available. So we're very optimistic about that will seal the science in place.
The companys selling.
Heavy machinery.
Apparently there are rebounding significantly as you can see all the construction companies listed on.
The Asian markets have been rising anywhere between 50% to 100%.
Last month a social.
Science out there.
I just need to say that that's happening in action before any real.
Increased happens on the rates.
And last from me is that I mean with the outlook for the rates to start to recover in those data points from China and 23 can you talk about your opportunity to fix more rate for the first half of 'twenty. Three I mean can you fix rate today above cash breakeven levels.
Or can you provide more detail on your strategy for fixing rates going into 'twenty three.
Yes.
We are.
We strongly believe that the first half of 2023 futures.
Our.
Very very low so grossly.
Gross labor so sorry.
So in our opinion it doesn't make any sense to fix at this very low rates, which we believe will.
The actual market will be much higher than those.
Presented on the court order rate. So we believe right now there has been a big oversold in the market for various reasons that they don't want to comment on.
And I strongly believe that we will see much stronger rates.
High rates that those nominated by their future contracts in the first half. So to answer. Your question is we will try and place Paul we have the premium on the BCA on the majority of our ships, we have the scrubber premium as well.
We are all very reluctant here as management and beauty of the company to commit a piece of very low levels.
Okay. Thank you Scott.
You're very welcome. Thank you.
Thank you.
Yes.
Dear speakers there are no further questions I would now like to hand the conference.
Our speaker.
Thomas.
For closing remarks.
Well again I would like.
Or is there another question operator, yes, yes excuse me. So we have another question has come from Tate Sullivan, just give us a moment.
Of course no problem.
Okay Sullivan. Your line is open please ask your question.
Thank you Scott. Thank you Eric let me follow up I think Rio Tinto yesterday guided two unchanged iron ore production for 23, I'm not sure on the timeline for Vale.
'twenty three guidance, but.
<unk> comes out and it's also Keith Scott production guidance on production guidance unchanged at 22 levels would you view this as positive for the market there probably too.
How it electrical data points before.
Well, yes, I mean.
First of all 2022 iron ore production was below the initial estimates and I'm talking about the overall production globally.
For various reasons.
And the platform once again.
If they manage to produce and export the same quantities in 2023.
The key in the game will not be where the demand is going to be stable or it's going to be a bit higher but lower again.
<unk> thousand 23 will be the fact that the supply of vessels. The effective supply is going to start to gradually reduce let me remind me right now that there is basically no congestion.
Globally so the.
The vessels turnover in all the major ports is very fast and very efficient and right now the rates are one of the main reasons why the rates are so low is because theres no congestion and everything is operating with high efficiency.
The key for 2023.
Assuming the demand is going to remain the same will be the beginning of the reduction of the effective supply of vessels. This is going to start to create a.
Long term.
The effect on the rates positive effect on the rates, which is going to last for years because.
That is going to have a progressive.
So it's not a one off thing.
So very confident that once the new regulations start to kick in in the beginning of 2017, we will start to see.
Rates start picking up because the effective supply of the vessels will start to reduce gradually over the next quarters.
Yes.
Okay, Great Alright, well have a great day. Thank you.
Thank you David Thank you.
Thank you.
Dear speakers there are no further questions. Please continue.
Okay. So I would like to thank once again, everyone for joining our call today.
Like I said before Q3 has not lived up to our initial expectations, but nevertheless, schindler demolished performed much better than the.
Both the coverage and we expect that the same is going to happen in Q4. So thanks, everyone for participating in our call and looking forward to catching up with everybody is good news in the future. Thank you.
This concludes today's conference call. Thank you for participating you may now all disconnect.
Thank you very much.
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