Seanergy Maritime Holdings Corp.

Thank you for standing by, ladies and gentlemen, and welcome to the Synergy Maritime Conference Call on the third quarter and nine-month 2020 financial results. We have with us Mr. Stamatis Santanis, Chairman and Chief Executive Officer, and Mr. Stavros Giftakis, Chief Financial Officer of the company. At this time, all participants are in a listen-only mode. There'll be a presentation followed by a question-and-answer session, at which time, if you wish to ask a question, please press star 1. on your telephone keypad, and wait for your name to be announced. I must advise you that this conference is being recorded today. Forward-looking statement. Please be reminded that the company publicly released its financial results, which are available to download on the Synergy website at synergymaritime.com. If you do not have a copy of the press release, you may contact Capital Link at 212-661-7000. 7566 and they will be happy to send it to you before turning the call over to Mr. Santanis we would like to remind you that this conference call contains forward looking statements as defined in the section 27A of the Securities Act of 1933 as amended and section 21E of the Securities Exchange Act of 1934 as amended concerning future events and the company's growth strategy and measures to implement such strategies Words such as expects, intends, plans, believes, anticipates, hopes, estimates and variations of such words and similar expressions are intended to identify forward-looking statements. These statements involve known and unknown risks and are based upon a number of assumptions and estimates which are inherently subject to significant uncertainties and contingencies, many of which are beyond the control of the company. Actual results may differ materially from those expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially include but are not limited to competitive factors in the market in which the company operates, risks associated with operations outside the United States, changing rules and regulations applicable to the shipping industry and other risk factors involved, Included from time to time in the company's annual report on Form 20-F and other filings with the Securities and Exchange Commission, the SEC, the company's filings can be obtained free of charge on the SEC's website at www.sec.gov. The company expressly disclaims any obligations or undertaking to release publicly and updates all to any forward-looking statements contained herein to reflect any change in the company's expectations with respect thereto or any change in events, conditions or circumstances on which any statement is based. Now I will pass the floor to Mr. Santanis. Please go ahead, sir.

Thanks, Sharon. Good morning, everyone, and thank you for joining us today to discuss our results for the third quarter and nine-month period of 2020. First, I hope that everyone listening to our call is in good health during these difficult circumstances. I also want to make a special mention to thank our seafarers for their continuous support and commitment in our fleet during these challenging times. In the third quarter of 2020, the global economy saw a fast recovery from the initial adverse shock of the COVID-19-related crash. The Chinese economy registered GDP growth 4.9% in the quarter and continued to drive strong demand for seaborn transportation of raw materials. As a result, KHI's freight rates have jumped from a daily average rate of about $7,100 in the first half of the year to approximately $20,600 per day in the second half till now. The current rate stands at about $12,000 per day. The daily average TCE of our fleet for the third quarter of 2020 was $16,219, a significant improvement from $7,000 per day in the first six months of 2020 due to the fast recovery of the KPI's market after June. This is more than double, obviously. As regards to the fourth quarter of 2020 to date, our commercial performance tracks the BCI index, which has averaged approximately 20,500 quarters of the date. As the market has softened since the beginning of November, it would be fair to assume that the TCE for the quarter will end up at approximately $17,000 per day unless there are positive developments. Given the supply and demand fundamentals in the dry bark industry, we are optimistic about the prospects of the cage size market. Our strategic focus on employing most of our vessels under index-linked arrangements leads to capturing strong charter rates when market conditions are favorable. Regarding our capital structure, we have worked to strategically position Synergy in the best possible way to benefit from future developments. The company's balance sheet is in the strongest position of the last 10 years with highlights as follows. We ended the third quarter with $33.8 million in cash, which is the highest ever cash balance reported since the relaunching of the company in 2015. Our secured debt was about $160 million, marking a 13% discount since the start of the year, i.e. a decrease of approximately $22.9 million. We bought an additional cage size vessel that was acquired without any debt financing. Total shareholders' equity was approximately $86.5 million, compared to $29.9 million at the end of 2019. This is almost three times up. Based on the current strength of our balance sheet and the KHS market outlook, I would like to state that we are excited about the prospects of our company. With this in mind, I would like to discuss the most important company developments in Q3 until now. On August 20, we completed our final public offering of shares and warrants. Net proceeds from the offering were approximately $25 million. In 2020, the total net proceeds from our capital raising activities amounted to about $72 million net. Currently, our total common shares outstanding are 68.3 million. Excluding the value of our ships and the cash flow from operations, our cash is currently at 50 cents per share. In July 2020, we completed a refinancing transaction of a loan facility secured by two of our cave-sized ships. The original loan was initiated in September 2015, and we achieved a material discount with a legacy lender of approximately 20%. The new loan of $22.5 million was provided by Entrust Global. In Q3, we recognized a $5.1 million gain in our financials following this refinancing. In continuation of the discussions with our senior lenders that were mentioned in our last earnings call, during the third quarter we obtained approvals for a two-year extension of maturity on one of our senior secured facilities that has an outstanding balance of $33.2 million and original maturity in December 2020. We also received approvals for covenant relaxations on another secured facility with maturity date in 2022. These agreements are subject to documentation, which has been temporarily postponed until we restructure a related party junior indebtedness discussed as follows. Jericho Delta Holdings is our single junior lender, which is also a related party entity. Jericho has provided extensions of the maturities of two facilities which failed you in June and September 2020 for a total amount of $11.9 million plus accrued interest. We have been in discussions for a comprehensive restructuring of their facilities, which takes into account the accommodations agreed by the senior secured lenders. However, our offer for a consensual solution, which has been proportional with the concessions agreed with our senior lenders, has not been accepted by GELCO, and the latest waiver period expired on 13 November 2020. This has triggered cross-default provisions in the company's remaining credit facilities. Our senior lenders have expressed their support in the company and we are servicing all our senior loan facilities and we will of course continue doing so going forward. Our intention is to reach a solution which will be fair and equitable to all the stakeholders of the company. Before I pass the call to our CFO, I would like to update you about my announced stock purchases. As of today, I have bought 300,000 of Synergy's common shares in accordance with the previously announced plan for open market purchases. As already stated, I have strong confidence in the company and its fundamentals. In addition, as announced, we do not intend to initiate any public equity offerings at least until March 2021, nor implement any reverse stock splits prior to that date. I will now pass the call to our CFO, Stavros Giftakis, who is going to discuss our financial results.

Go ahead, Stavros. Thank you, Samadhi. Good morning, everyone. I hope that you and your families are staying safe and healthy. Our operating performance marked a clear improvement in the third quarter of the year when compared to that of the first half, aided by the strong recovery of the capesize market. It is very promising to see that both steel and energy demand in China states a very strong and fast recovery during a period of extreme uncertainty such as the one seen through the first months of the pandemic. In terms of our financial performance, I specifically refer you to the earnings press release issued earlier today, which details our financial results and vessel performance. During the third quarter, net operating revenues, defined as revenues after deducting all voyage expenses and commissions, amounted to $15.8 million, reduced by 1% from $15.9 million in the same quarter of 2019. The marginal reduction was a result of a lower daily timesizer equivalent which was partly offset by more operating days during the quarter. Indeed, our fleet recorded 973 revenue-generating days in the third quarter of 2020, when compared to only 790 operating days in the third quarter of 2019, during which two vessels undertook the scrubbing installation and one vessel undertook its scheduled special survey. Furthermore, the addition of the good ships since August this year also increased fleet days in the current quarter. As regards our versus daily earnings, our daily time charter equivalent in the third quarter of 2020 was $16,219, or 19% lower than the $20,143 time charter equivalent achieved in the same quarter of 2019. This was mainly due to the disproportional drop by 29% in the average earnings of the Baltic Cape Search Index during the period. A decisive factor for our improved commercial performance was the deployment of southern vessels on index-linked time-charters during the third quarter of 2020, while our revenue in the third quarter of 2019 was mainly generated through voyage charters. As the BCI rose very abruptly in the third quarter, it was straightforward for our fleet to capture this positive move without being materially affected by the timing of any particular voyage features. Moving on to vessel operating expenses, this amounted to $6.4 million in the third quarter of 2020 as compared to $4.8 million in the third quarter of 2019. The increase is attributed to the increase in operating days due to the addition of the good ship to our fleet, as well as the increase in daily operating expenses by approximately 14% compared to the same quarter of last year. Part of the increase was due to maintenance expenses and crew training and familiarization expenses related to the scrubber equipment on board six of our vessels. Perhaps more importantly, COVID has also helped and continues to have a significant impact on vessel optics. Crew changes have been costing more than normal due to extended hotel stays for our seafarers, COVID testing, and increased travel costs. In light of these elevated costs, It should be understood that owing to the travel restrictions and quarantine measures, a large number of seafarers have been left stranded on board vessels all over the world. This situation has been dragging on for months, and it is our company's priority to help reduce seafarers' return home. Turning to financial expenses, we recorded interest and finance costs of $5.3 million in the third quarter of 2020, as compared to $6.1 million in the same quarter of 2019, aided by lower interest rates. On a cash interest basis, interest expenses were roughly equal to the same quarter last year and amounted to about $3.5 million. This is because the cash interest on related party indebtedness for 2019 was set with new shares. EBITDA for the third quarter of 2020 was $12.7 million as compared to $9.8 million in the third quarter of 2019, while net income was equal to $3.6 million compared to a net income of $0.7 million in the same quarter of 2019. The EBITDA and net income figure include the refinancing gain that was recorded in the third quarter of 2020 following the refinancing of one of our senior facilities at a discount. The resulting reduction in our overall debt facilitates a healthier balance sheet going forward. Moving on to discuss the nine-month results, net operating revenue was equal to $21 to $28.1 million compared to $30.7 million in the corresponding nine-month period of 2019. Daily time starter equivalent was $10,267, down from approximately $12,000 in the first nine months of 2019. I would like to point out that the time starter equivalent achieved over the first six months of 2020 amounted to only 7,000 per day, before improving considerably to 16,200 in the third quarter. We are optimistic that 2021 will not be marked by black swan events similar to those seen in 2019 and 2020, and therefore we expect the energy environment to be less volatile. Operating expenses increased by 16% in total during the nine-month period ending September 30, 2020, mainly due to the issues discussed earlier relating to the scrubber equipment and the COVID-19 outbreak, while as reported in previous updates, in the first quarter of the year, we incurred additional insurance expenses having to do with the relief premiums on certain of our covers. Having said this, we believe that operating expenses are more accurately compared over a 12-month period by considering all the expenses that our vessels shall incur over a full year of operations. Every day in the 9-month period of 2020 was equal to $11.6 million as compared to $11.9 million in the 9-month period of 2019, a slight decrease of 2.5%. Net loss for the first 9 months of 2020 was $16 million compared to a net loss of $14.8 million in 2019, mainly due to the adverse market conditions seen in the first 6 months of 2020. Regarding our balance sheet, as of September 30, 2020, we entered the quarter with $33.8 million in cash and cash equivalents, and shareholders' equity was equal to $86.5 million, up from $14.6 million and $29.9 million, respectively, at the end of 2019. Following the capital raising activities that took place in the second and third quarters of the year, our trade credit position has improved by $11.2 million since the end of 2019, attesting to the improvement in our overall financial health. Senior secured debt was reduced by approximately $23 million from $193 million to $160 million, or $14.5 million per vessel, which is deemed to be sustainable considering the average age of our fleet. Considering our current cash reserves, cash per fleet vessel amounts to approximately 3.1 million, one of the highest per vessel cash position amongst our peers. Moving on, I'd like to focus on the measures aimed at enhancing and preserving liquidity. During the third quarter of 2020, Synergy concluded an underwritten public offering that resulted in net proceeds of approximately 25 million, while including the partial exercise of the underwriters of their allotment option. The increase in equity capital has improved the debt servicing capacity of the company and therefore has proven to be instrumental in facilitating discussions with senior lenders. At the same time, the acquisition of one more high-quality Cape-sized vessel using equity capital only has improved both our operational scale and cut generating activity while reducing the average break-even rate of the fleet. Following this transaction, Synergy has established a significant liquidity runway whereby even if market conditions fail to improve as expected, the company will still be able to operate at least until the end of 2022 without requiring any new injection of equity capital. At this point, I would like to provide some specific updates on our borrowing activities. As a reminder to our listeners, since the start of the year, we have engaged in discussions with our senior lenders. The aim has always been to address upcoming maturities while maintaining adequate through-the-cycle liquidity during a difficult market environment. These discussions have been quite fruitful so far, and we have managed to address all maturities falling within 2020 while improving the terms of our borrowings in many cases. In addition to the previously announced Alphabank extensions, and the refinancing of the HCOB facility with an aggregate outstanding balance of approximately $60 million. During the third quarter, the company obtained credit committee approval for the two-year extension of one of its senior secure facilities that had an original maturity date in December 2020 and an outstanding balance of $33.2 million. Additionally, we have obtained approvals to amend covenants for several facilities that will enable Synergy to execute its business plan effectively over the next years. These approvals are subject to definitive documentation, while I'm particularly happy to note that once the documentation has been completed, there will be no senior loans maturing before the fourth quarter of 2022, which enhances our ability to deal with ongoing market uncertainty. In summary, I would like to stress once more the importance of maintaining our financial flexibility in the context of market developments. Overall, despite the favorable supply and demand fundamentals that have driven the recovery out of the market bottom 2016 and have led to three consecutive years of improvement in the cake size market, the past three years have also illustrated the high level of volatility inherent in the dry fat market through three separate distinct events. Firstly, the initiation of trade wars by the Trump administration in 2018, followed by the major valet dump disaster in 2019, and more recently the outbreak of of the global pandemic and the resulting lockdowns and shutdowns of the economies around the world. In this context, increased liquidity and financial flexibility will play a key role in allowing seniority to capitalize on a sustainable recovery of the cashless market, regardless of volatility. Lastly, and having addressed the most important issues related to our senior debt facilities in mutually beneficial ways, I take into account the interests of all stakeholders of the company our focus is now placed squarely upon finding a harmonious, amicable arrangement as regards the maturities of our junior loans provided by GELCO, a related party. These maturities are falling due during what has proved to be a historically volatile period of gross economic and political uncertainty. Yet, we are aiming to find a mutually beneficial solution that will allow all parties to realize the value of their investment in Synergy in the long run. Since our related party loans and promissory notes represent junior, or in some cases unsecured, liabilities to the company, and given that we have agreed terms with our senior secured lenders to address maturities, the right solution with the related party debt should be only a matter of time. Having said this, as disclosed in our earnings release, the last waiver provided by Duelgo has expired on Friday, the 13th of November. Based on the frequent dialogue with our senior lenders, we are confident as to their continued support and that they will not act on the cross-default provisions. So, all our senior lenders have been very supportive of our business, but there is only this one junior creditor, which is not a financial institution, with whom we have not yet reached an agreement. Otherwise, it's all business as usual, and we hope to reach an agreement with our senior creditor soon. This concludes my review. I will now turn the call back to our CEO, who will discuss the marketing and industry fundamentals. Stamatis? Thank you, Stavros.

As mentioned earlier today, we are very optimistic about the long-term prospects of the CXI sector. The market has improved in each year from 2017 until 2019 and has been able to stage a very fast recovery from the COVID-19-induced crisis so far in 2020. As reminded by Stavros earlier, the last three years have been marked by various extraordinary negative events. The trade wars initiated by President Trump between U.S. and China in the first quarter of 2018, the major mining disaster that occurred in Brazil for the first quarter of 2019, and the emergence of the COVID pandemic in the first quarter of 2020 each had a severe impact in driver trade. In this regard, it is very encouraging to see the resilience of the market, which has been very fast bounced back from these black swan events and achieving higher average levels every consecutive year. All indications point to the fact that the market will trade at sustainably higher levels as soon as the effect of this one-off event dissipates. As regards to market developments during the current year, China imports of raw materials initially crashed in the first quarter of 2020 due to the coronavirus effect, before jumping back in the period from June until September in order to compensate for the initial decline. We are optimistic that the global economic stimuli and the announced infrastructure investments amounting to trillions of US dollars will help the market rise to even higher levels. The cap size market is the first to respond positively due to the resilience in steel and iron ore demand and the increasing high-quality ore supply from Brazil, which is expected to reach 400 million tons over the next three years, up from about 300 to 320 million tons this year. As provided by Bremer ACM Research, fresh economic data for October shows continued strength in Chinese industry as stimulus continues to provide support for the manufacturing and construction sectors. The official measure for industrial production grew 6.9% year-on-year in October as the Chinese economy continues to recover. Steel production has outpaced 2019 levels over the first 10 months of the year by 5.5%, totaling 875 million tons. In my view, these figures provide even more support to the positive story of the capesite segment that has proven resilient even through such unprecedented circumstances. Looking towards the next two years in more detail, in 2021 and 2022, the volume of trade is expected to return to an average growth of about 3%. As regards to fleet growth, the Cape Size Order Book is at the lowest levels since 2003. New building orders so far in 2020 have amounted to about 2.5 million deadweight tons, a fraction compared to the full-year figures of 20.7 million tons in 2018 and 14.2 million tons in 2019. This is a very significant reduction, which will likely lead to potential shortage of tonnage over the coming years, especially as the older ships become harder to operate. Given the obscure outlook of the new environmental regulations and until the IMO provides more guidance on the shape and form of new restrictions that are going to be introduced in 2030, it is unlikely to see a surge in new building vessel activity. In addition, major dry bulk chatterers do not provide long-period contracts, which makes it even more difficult for new ships. Finally, the reluctance of traditional banks to finance vessels that do not comply to strict and highly uncertain regulations and without period employment is adding another layer of difficulty to anyone considering new buildings. Synergy's emphasis on the improvement of the fleet's environmental efficiency and the established long-term relationships with prominent satirists ensure our fleet's continued commercial success in this environment. Given the material improvement of our balance sheet in the past three quarters, we expect to be in an advantageous position for future market developments. On that note, I would like to turn the call over to the operator and answer any questions you may have. So, Sharon, please take the call.

Thank you, sir. Ladies and gentlemen, as a reminder, if you wish to ask a question, please press star 1 on your telephone keypad and wait until the automated message advising your line is open. Please then state your first and last name before you ask your question. If you wish to cancel your request, please press star 2. Once again, please press star 1 if you wish to ask a question. Thank you. We will now take our first question. Please go ahead. Your line is open.

Hello. Good day. This is Tate Sullivan from Maxim Group. Thank you for your comments. My first question, can you comment, are you, after purchasing a ship in 3Q20 and with your cash, at the end of the quarter, and then considering the JELCO negotiations, are you happy with your shipments? And if so, can you comment on the near-term uses of cash and in the longer term, please? A couple of questions in there.

Of course. First of all, good morning, Tate. I hope you're well. Well, basically, you know, we raised capital in 2020, and that capital needed to be allocated in a certain manner that we thought and we were directed, which is fair for all the shareholders of the company. With the cash that we raised, we delivered the company significantly. We bought this unlevered ship, and now we have a significant cash cushion to establish it to deal with any potential future uncertainty that may come. Now, that ship alone, we thought it was one of the best moves we have done because we agreed to acquire that ship in the end of the second quarter at one of the lowest historical prices ever for this. type of a ship. We bought it for $11.4 million. Its first voyage alone, the ship is going to make a net cost of about 1.7, 1.8 million tons. So you get in about three, three and a half months, 10% return on your capital on the investment. So it makes great sense to buy that ship. And on a debt-free basis, it contributes a lot to the cost of the company. So, you know, we feel great about it. And, you know, we wish we had the capacity to do additional similar purchases.

So, excuse me, you do have the capacity to make similar purchases?

Well, right now we don't because, you know, we're in discussions with various lenders in order to facilitate, you know, certain workflows. But if that uncertainty goes away, we will most certainly potentially look into additional acquisitions if the market in the next six or nine months recovers at a higher level.

Thank you. And then another one for you. You mentioned the cushion to work through if volatility returns. Can you remind me, and have you talked about your break-even rate roughly for 21 and 22 with your current shift mix in context to the VCI currently tracking quarter to date? I think you mentioned $20,500. Yes.

Well, our breakeven has reduced significantly in 2020, especially after the current offerings we've done, because we deliver the company significantly. So from about, I would say, around $18,000 that the breakeven was in the previous years, especially in 2019 with all these capex, we're now below $15,000 a day, sometimes $14,000 a day on second quarter. So I would say around $14,000 to $15,000 a day as a way of the average breakeven of the company. Right now, the BCI is on average at $20,000. Today it's at $12,000. There is a huge volatility, as you know, in the KPI segment. In the beginning of the year, it was at $2,000 or $3,000 a day. It peaked at $35,000 a day. So we have to be cautious as to the way that we allocate our capital and our cash reserves because we might see dips again and we might see peaks again. So we need to be cautious and we need to be conservative about the way that we allocate our capital.

Thank you for those comments. Have a great rest of the day. Thank you, Dave. Nice to hear from you.

Thank you. I will now pass the call back to you, sir, for closing remarks.

No other questions, Sharon?

No other questions at this time, sir.

All right. Thanks very much, everyone. Thank you for listening to our call, and stay safe. Thank you very much.

Thank you. That does conclude our conference for today. Thank you for participating. You may all disconnect.