Q2 2023 Seanergy Maritime Holdings Corp Earnings Call
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Okay.
Thank you for standing by ladies and gentlemen, and welcome to the synergy Maritime Holdings Conference call on the second quarter and its search at the June 2023 financial results, but how would that be system I, just touched on as chairman and CEO and Mr established deep pockets chief financial.
Or is that all synergy Maritime Holdings Corp.
At this time all participants are in listen only mode that will be a presentation followed by the question and answer session at which time, if you would like to ask a question. Please press star one bond on the telephone keypad and you will then hear an automatic message you'd bother your hand is raised.
Please be advised that this conference call is being recorded today Wednesday second of August 'twenty to 'twenty three.
A webcast of the conference call will soon be made available on the scene that your website www dot finicky maritime Dot com.
To access todays presentation and listen to that all cost would you file because it seemed that your website following the webcast and presentation section under the Investor Relations page.
Please now turn to the slide two of the presentation.
Yeah.
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 could cause the actual results to differ materially from those in the forward looking statements is contained in the second quarter and it's such a tough June trying to check the three earnings release, which is available on the website again www she likes your maritime Dot com.
I would now like to turn the conference over to one of your speakers today, the chairman and CEO of the company Mr. Stomach. This company's please go ahead Sir.
Yeah.
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 half of 2023, while also announcing the distribution of another cash dividend.
I'm very pleased to report a profitable quarter for synergy with our daily time charter equivalent outperforming the market index.
So you'd see the daily time charter equivalent of $18700 or 20% above the index average for the quarter, leading to a quarterly net revenue of $28 3 million and.
And net income of 700000.
This represents a sequential improvement compared to the first quarter of 2023, whereby revenue was $18 million and net loss came.
In at $4 2 million.
In the second quarter, the Capesize market recovered from a seasonal weakness you're seeing in the start of the year.
The Capesize index, averaging at $15600 up from $9100 in the first three months of the year.
Demand for seaborne transportation remains strong, but charter rates came under pressure as historically low congestion as well as higher deadweight adjusted vessel speeds have resulted in a temporary effective vessel oversupply.
It's encouraging to see strong increase ton mile demand for key raw materials, and I'm very optimistic that the negative effects of the low congestion have already paid.
During the quarter remained consistent with our shareholder distributions strategy, we're looking to expand our fleet through accretive opportunities.
As we will discuss in more detail, we agreed to acquire a new customer Max vessel at a great price, while we also repurchased about 2% of our common shares in the open market at a significant discount over the current stock price.
Lastly, we'll continue to optimize our balance sheet through $54 million of the financing transactions that will reduce our interest rate margins and help neutralize a portion of the increase in benchmark interest rates.
Our overall liquidity increased by around $15 million through these transactions and I'm glad to report that there are no currently loan maturities until 2025, which provides a clear runway for more shareholder distributions.
Let's now move to slide number four to discuss our shareholder rewards initiatives.
Our board has authorized the distribution of another regular quarterly dividend of <unk> <unk> per share for the second quarter, which brings our total distributions since the commencement of our dividend program to $23 $9 million or.
What about the dollar 33 per share this represents a 23% of current price levels.
Moreover, during the quarter, we repurchased about $1 $6 million work for our common shares at an average price of $4 35 per share, which is 25% lower than our current price levels.
We always monitor ourselves evaluations combined with the liquidity and we may emphasize her buybacks over dividends in the future quarters.
In any case, the total capital return to our shareholders since the start of the program a muscle about $64 million and I'm confident that this will continue to be the top priority for synergies management moving on to slide number five. This is an overview of our commercial developments as you can see our fleet.
It has performed better than the Capesize market since the start of 2022, let's say 18 months ago in the past six months, particularly our TCE was 20% higher than the PCI.
This is a result of our robust commercial performance, our hedging activities as well as the investments made in improving our vessels efficiency over the years.
In addition to energy saving devices about three fifths of our ships are scrubber fitted allowing them to earn fuel spread premiums currently about 25% of our ownership days in the third quarter are fixed at an average daily rate above $21000 a day in.
And 21% of our days for the rest of the year are fixed at an average rate of 22000.
In terms of PC guidance for Q3, we expect RPC to be equal to about $16100 and this is assuming that our ships will learn the current FFA rate. This is 22% higher than $13200 average of the PCI in the third quarter to date.
With regards to the vessel transactions in May we're grateful to our fleet, our first new customer class vessel, which was built in 2011 at the Max shipyard in China. The vessel deliveries estimated to take place on about October 2023, initially through a 12 month bareboat charter while synergies.
It has a purchase option at the end of the charter period.
The total cash outlay, assuming exercise of the purchase option next year will be $35 million.
Upon delivery, we expect the vessel to be deployed in an index linked time charter at a significant premium to the PCI.
Lastly, on our commercial developments, we extended the duration of three of our time charters at the same or better terms as before.
Since April the championship extended its existing time charter for a period of 24 to 30 months.
With a higher premium over the index and the new fuel spread profit sharing scheme for synergy and receiving the majority split in June the charter of the partnership exercise the second option a period with extension period, starting between August and November of this year and also here a higher fuel profit sharing.
Kim for synergies the.
The same chatter elected to extend the time charter of the Lora chip in direct continuation of the previous agreement. The extension will commence in October of 2023, and less until August 2024, with an increase in the scrubber profit share accruing <unk> that concludes my run down of this quarters highlights so I'm going to pass the floor.
Four to establish our CFO before returning for a brief market commentary.
Thank you Samantha and welcome everyone to our second earnings call for 2023.
Let us start by reviewing the main highlights of our financial statements for the second quarter and six months period that ended in June 32023, and.
Amid a weaker than expected keeps us market our financial performance was satisfactory with net revenue for the quarter, reaching <unk> 3 million net revenue for the first half of the year was equal to $46 4 million. These figures are lower than the respective period of 2022 all bye.
Once again in terms of PC, we outperformed the PCI by approximately 20%. Meanwhile, our adjusted EBITDA in the second quarter was equal to $15 7 million and $19 6 million in the first half of the year. They are expected to be used for last year was $17 three.
And third for $2 million, respectively. Nevertheless, in the second quarter of 2023 will return to profitability recording net income of 700000 dreaming. The net loss for the use of <unk> to $3 5 million.
And bottom of the market knowing their meter we are optimistic that we will continue only profitable trajectory for the rest of the year.
Moving on to our balance sheet. Despite the volatile market the increased interest rates as well as our continuous efforts to return capital to our shareholders through dividends distributions and buybacks, we obtained a solid cash position of approximately $22 5 million or $1 4 million per vessel.
On the debt front, we retain the moderate debt ratio, 50%, while we achieved to even reduce our net debt since the beginning of the year by approximately 7%.
Net debt at the end of the first half of the year stood at $212 million a figure fully covered by the scrap value for fleet based on current scrap prices I will return to discuss our debt profile further in a moment let.
Let us now turn to slide seven to discuss our profitability performance as I mentioned before we outpaced the market benchmark in both the second quarter and first half of 2023 in specific we achieved a TCE of 18700 per day in the second quarter and 14700.
$60 per day for the first six months of 2023.
Our efficient commercial strategy and our decision to hedge part of our freight exposure for the second quarter have helped us to perform better than the market. As a result, we recorded an adjusted EBITDA of $19 6 million for the first half of the year with an improved margin in the period that keep sites right.
<unk> remained overall subdued with an improved market outlook for the rest of 2023, we expect our financial performance to strengthen further Meanwhile.
Daily operating expenses, excluding pre delivery expenses were $6900 per day in the first half of the year.
A feature and very close to the levels recorded in 2022.
The elevated opex attribute mainly to price inflation in goods and services across the shipping sector as well as the global economy.
Cash G&A.
General and administrative expenses adjusted for certain noncash items in the first half of the year were $4 6 million. However, this figure includes administrative expenses incurred by synergy in monitoring United Maritimes operation in exchange of which we have receiving fees approximately.
One 3 million in the same period.
That basis, our actual cash G&A was approximately $3 2 million or $1100 per ownership day, which is very competitive compared to our BDC peers, let's now move to slide eight to discuss our debt profile.
Debt at the end of the second quarter was $235 million, including convertible notes, which are expected to be fully repaid by the end of the year. Given this number with the debt per vessel suitable $14 7 million basically unchanged from the end of 2022.
During the first half of 2023, we concluded $53 $8 million of refinancings, which benefited synergy in numerous aspects.
As discussed in detail during our first earnings call. Some months ago, we refinanced three of our vessels through two sale and leaseback agreements and the new sustainability linked loan.
This margin of the two sale and leaseback facilities are lower than the previous financing by 120 basis points and 50 basis points respectively.
In addition, with the refinancing of the champion sale and leaseback, we have addressed all loan maturities until the second quarter of 2025, removing any potential pressure from the company, even if market recovery is slower than expected. Finally, we added approximately $50 million of extra liquidity.
Which came to support asset or rewarding initiatives and the acquisition of Hittite and cheap as discussed.
As previously best in market.
Lastly, it is worth mentioning here that our leverage remains practically unaffected at around the 50% Mark our overall debt strategy has allowed us as you can see in the second graph to retain a scrap coverage of total debt for another quarter above 90%.
The market value of our fleet at the end of the second quarter was $443 3 million or $27 7 million per vessel almost twofold the debt per vessel level.
Finally, as regards to our cash interest expenses. This will increase in the first half of 2023, which was inevitable given today's interest rate environment. However, our refinancing strategy did partly offset the steep increase in base rates through the last 15 months.
Let's now turn to slide nine our EBITDA guidance for the year is expected to surpass the $45 million Mark even if the market in the second half of the year average is at 15000 per day based on our current operational capacity, even a small increase in the expected freight rates in the second half would lead to a name.
EBITDA above the 50 million Mark.
It's worth mentioning that we have already fixed 21% of our ownership days at an average rate that exceed 20000. In addition, our new Newcastle Max is expected to be employed at a significant premium over the PCI index given all these actions and we have potential market rebound in progress we expect.
But we will be able to increase our profits enhanced further synergy value and continue our shareholder rewards initiatives.
This concludes my review I will now turn the call back to Sam artist, who will discuss the market and industry fundamentals.
The mapping.
Thank you Sabra.
In the current year, so far we have seen a very healthy increase in the seaborne transportation of the main raw materials like iron ore coal and bauxite.
However, the Capesize charter rates have been negatively affected by the increase in the effective supply of tonnage without any material increase in the actual number of new vessels. The effective tonnage supply increase is a result of the reduction in port congestion to historical low levels and the higher deadweight adjust.
Adjusted vessel speeds observed, particularly in the larger carriers such higher speeds are slightly counterintuitive to say the least given the recent emphasis placed on the reduction of the industry's carbon footprint. This has been the case for all dry segments across the board as overall drive.
Bulk ton mile demand in the first half of the year grew approximately five 5% while effective tonnage supply was up by seven 1% Accordingly broker reports looking.
Looking at the actual order book of new vessels. It currently stands at the lowest levels in several decades, considering the importance of ship supply when it comes to long term dry bulk market direction, we remain optimistic for the positive dry bulk trend.
Overall dry bulk ton miles are expected to grow by around three 3%.
Two 5% in 2023, and <unk> 74, respectively with corresponding fleet growth of two 9% and one 9% respectively.
Given that a large part of the <unk> deliveries have already taken place and that the trend of declining congestion seems to have reached a bottom over the past months the balance seems quite positive moving on to Capesize demand, China iron ore imports in the first half of 2023 were up by seven 7% a year on year.
<unk>, which is a massive increase as we discussed in our last quarterly update the lower iron ore inventories would be a driver of increased imports regardless of domestic steel market conditions.
China's economy has taken longer to recover from the Covid lockdown than we had initially anticipated, but we view the delay is a reasonable given the magnitude of the economic setback.
I don't know what inventories remain at low levels, while still production and exports have recently picked up steam the eventual recovery in the general economy is forming very favorable conditions for the capesize market.
Looking beyond that of lower seaborne coal exports have also shown significant growth. This year with full year ton miles are expected to be up by five 4%. According to research coal trade volumes are generally subject to seasonality, but the important thing is at higher average call volumes are setting higher floor for the <unk>.
<unk> and charter rates compared to the years before 2021.
This along with the ever increasing bauxite volumes should result in a sustainable upward trend for demand drivers there.
Turning to the general economic environment. It should be noted that since early 2020 to the world economy Delta with a combination of unusual circumstances punctuated by a record high inflation rising interest rates in China have been a complete lockdown for three years. This is now mostly behind us with significant higher ton mile demand.
China stimulus to support the market as well as massive infrastructure projects globally.
We won't Capesize vessel supply based on the limited outstanding Order book the outlook for the Capesize sector remains very encouraging.
The Capesize enviable of shareholder book scheduled for 2023 delivery.
Mounts to only about 1% of the total fleet with total order book across all delivery years being only about four 8% of the existing fleet.
The limited new building activity of the last few years has kept fleet growth at very low levels and Capesize fleet growth in 2024 is not expected to surpass 1%. Despite the limited long term fleet growth in the Cape market. During the first half of the year the volatility in charter rates have been mainly a result of.
Mostly short term factors. These factors have led to an increase in effective dollar supply. So it would be worth taking a few moments to discuss the main factors, causing that the.
The first is the historical low flipped congestion. This is attributed mainly due to better weather conditions globally as well as the release of more than 250 vessels from the grain corridor in Ukraine, a second factor would be increased vessel speed.
It has been observed that in the main long haul C. III route mainly large all carriers are sailing at accessing speeds shoring up short term tonnage oversupply.
Needless to say that increased speeds have an exponential effect on the C. O. Two emissions, we have calculated that if those 100 ships and reduce their speeds only by one not the annual reduction in <unk> emissions would be more than 500000 tons.
Overall, we expect to ship congestion to start increasing towards historical averages in the next months.
In addition, the spitting ships should start abiding by the new environmental regulations. Once the temporary effective oversupply of ships is reduced we strongly believe that the capesize freight rates should bounce back to much higher levels.
<unk> is in a great position to deliver high returns in this favorable environment rewarding our shareholders through distributions remains our highest priority and we will continue doing so based on the strength of our pure play capesize exposure and our high quality fleet.
That note I would like to turn the call back to the operator and answer any questions. You may have operator, please take the call.
Participants as a reminder to ask a question you will need to press star one on your telephone Lake Finance will be announced please Jim Barber will compile the Q&A roster.
Now we're going to take our first question.
Yeah.
And the first question comes from the line of Tate Sullivan from Maxim Group. Your line is open. Please ask your question.
Hello, Thank you good day.
If we could start with the press release from July six which included the repurchase details as well as the bareboat charter acquisition of the New Castle Max.
Can you start and why you structured the acquisition that way and the benefits of that structure. Please in this current market.
Hello, Good morning, how are you.
Great. Thank you extra.
Excellent so I'm going to start with.
With the fact that the fleet of the company was reduced recently.
Due to the sales so the older ships to United Maritime So we wanted to increase.
The number of ships under our commercial and technical management. However, we wanted to find ways and not to spend too much of the cash of the company.
And we found this bareboat agreement with.
Very prestigious Japanese owners and they accepted that we chartering the ship for a period of time of about a year and then we have a purchase option to acquire it. So overall I think it's a great deal for the company because we increased the operating leverage significantly by a new new customer new customer <unk>.
So at the same time, the cash outlay remains quite limited so we have cash for other purposes, well like stock buybacks or whatever and.
And the overall deal is a great deal because.
All things been into consideration the bareboat hire.
Advanced payments as well as the purchase option. The overall price of that vessel is quite low it's lower than the recent transactions with them in the market. So it's a win win win situation for us and that's why we decided to do it.
And did I hear you say that.
And one of the remarks that it should have a premium to that.
Why is it 2011 built vessel and why is that.
It won't be the case.
It does.
It does indeed, yes, just just to put things into perspective.
In the filings of other companies that they have acquired a new customer Max vessels for something in the region of close to $80 million eight zero. Those ships, we understand they are chartered to the PCI at 145% to 150%. So 151, 5%. This ship with board for a fraction of that price.
So we bought it for $30 million 31 point, something and it started it's going to be charged to the PCI premium in excess of 20%. So we're spending a fraction of what other companies are paying for similar tonnage and the revenue generating capacity of that shape is going to be.
Im not going to say as good as but very very good premium over the PCI. So in respect of return on the investment I'd say that the sustained comparable.
And then the last one on that and thank you for the detail is what.
In terms of buying the ship at the end of the 12 month bareboat period for $20 million.
What do you need to see in the market to exercise that option.
I think it will go we will most likely exercise that option I don't think that we will not exercise the option. So it's pretty much a high degree of certainty that we will most likely exercise that option.
Okay, Great and one other from me to you had high utilization in the second quarter that was the main factor that caused the revenue to exceed my expectations at 99% highest in at least four quarters.
Should that decrease in the coming quarters with Canyon scheduled downtime.
I mean, we have pretty much reported.
Other drydocks that we will have until the year end, we don't have any material.
Drydocks until the year end, so I would assume that 98%, 99% is a safe assumption for the remaining of the year.
Okay.
And then last last one.
The deposits made for the bareboat charter and in Q2 or all the payments related to that are in <unk> and the rest of.
Hi, Dave we established the first three and a half million have already been deposited.
There is only one three and a half million dollars deposit.
Remains at the delivery of the ship.
It can make the fourth quarter.
So thats the only remaining outlook before we take delivery of the vessel.
Alright, alright excellent.
Have a great rest of the day. Thank you both thank you have a great day bye bye.
Thank you.
Now we will go and take our next question.
Please standby.
And the next question comes from the line of Christopher <unk> from Arctic Securities. Your line is open. Please ask your question.
Hello, gentlemen, congrats on another great quarter.
Hello, Thank you.
So regarding the Newcastle Max expectation.
It seems like the great deal of this play.
You're getting quite a good premium compared to conventional capes.
So running mute.
Comprehensive PCI.
And sort of from a.
Strategic standpoint are you looking to chat more nukes are.
Just don't know.
I will now.
Well I cannot really answer this question, we might have similar opportunities in the future that we will take into serious consideration if the economics work well for us it's pretty similar the trade. So this.
The types of ships they pretty much carry the same cargoes, which is iron ore coal and bauxite. So from a commercial perspective and from the same we're going to we're going to use the same charters as we already have in the company that we know and trust and we have excellent relationship for the last many many years so overall.
The good take us with the ship if it's a good quality, we might as well look at additional Newcastle mattresses or capes under this structure, but it's not that we are open for new acquisitions.
Overall for assets.
You know more.
A general approach silver.
Shareholder rewards as well so for us it's going to take it we will have to be a very good deal to take it into consideration.
Okay. Thank you.
Sort of.
When we're looking at now is now it seems to be sort of quite disconnected to two time charter rates.
So what's your view on the current disconnection.
I mean something has to give here.
Uh huh.
At least when we're looking at this from a historical perspective.
What what's your view of what's what's holding holding the values.
Oh no.
That's a great question first of all if you look at the buyers for the Capesize and the new customer Max's since the beginning of the year if not for the last two years altogether. They are very very serious players you don't have like a speculative acquisitions on the Cape So youre seeing names that you know that are very serious players.
And for them it represents a great value in the investment as it is for us. So what we've seen the value of a capesize vessel knowing that the overall order book on an annual basis is around 1% to one 5%. This is zero almost zero order book going forward. The fleet is getting older will have the new regulations coming in so.
The best fundamentals right now they appear to be in the capes and the new customer mix.
Segment, so people see that Theres, a lot of liquidity coming from other segments of the shipping universe like container ships and tankers.
Splashing 30 to 50 million, depending on the age of the vessel to acquire tonnage or $20 million to $50 million.
For some people, but we are running at or so, but overall you see a very serious players getting back into the game.
In my opinion, that's a good sign.
Thank you.
Sure.
Looking at.
And you were charged off loans.
Right.
Obviously, the demand from coverage, which has been.
Well timed I must say.
So another great job down there.
But.
Whats your Arizona Youre going forward.
Sure.
Rates would you need to see in order to be quite a lot of 'twenty 'twenty four days.
Well for 2024, I cannot give you an answer because 2000 before is going to be the first year that you can have all these regulations kicking in so in our opinion you will see a lot of speed adjustments coming in in 2024, I would like to remind everyone. On this call. The fact that.
Even though people are saying that the average flip speed is lower than what it used to that's actually not correct. If you look at the deadweight adjusted.
<unk> of the fleet its actually much higher so if you look at all the ore carriers from <unk> three ships between $150 400000 tons. Most of them are going with 14 15 16 notes in my opinion, that's completely inexplicable.
This kind of speeds and our meeting this kind of share too.
Up in the atmosphere, so one way or another there will have to abide by the new regulations and they will have to cut speeds. We have told many many times.
The reason why the market is at these low levels is not only the congestion which is at historical low levels, but the fact that the large or carriers can speed up to this excessive speeds and that creates a big and temporary oversupply of tonnage. One so that is more regulated and more control and discipline.
And I expect we're going to see a better market. So to answer your question about 'twenty 'twenty. Four is the first year that you have not only the CIO A&P excited but also the EU ETS and thats going to be the first the monetary impact for many people, calling on not calling you because there's going to be more disciplined on the speeds.
So we're all very much more optimistic for 2024.
Im not going to give you a number but my projections, but.
I wouldn't be too soon to fix something for 2024 going forward.
Okay.
Great. Thanks, a lot.
Yes I.
I look forward to 2024.
Thank you. Thanks, Thanks Christopher.
Thank you.
Dear participants as a reminder, if you wish to ask a question. Please press star one on your telephone keypad.
There are no further questions. This concludes today's conference call. Thank you for participants for your participation you may now disconnect speakers. Please standby.
Thanks, and have a great day.
Okay.
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Yes.
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