Seanergy Maritime Holdings Corp.

Thank you for standing by, ladies and gentlemen, and welcome to the Synergy Maritime Holdings Corp conference call on the second quarter ended 30th June 2023 financial results. We have with us Mr. Stamatis Tantanis, Chairman and CEO, and Mr. Stavros Giftakis, Chief Financial Officer of Synergy Maritime Holdings Corp. At this time, all participants are in listen-only mode. There 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 11 on your telephone keypad, and you will then hear an automatic message advising your hand is raised. Please be advised that this conference call is being recorded today, Wednesday, 2nd of August, 2023. The archived webcast of the conference call will soon be made available on the Synergy website, www.synergymaritime.com. To access today's presentation and listen to the archived audio file, visit Synergy website following the webcast and presentation section under the investor relations page. Please now turn to the slide two of the presentation. Many of the remarks today contain forward-looking statements based on the current expectations. Actual results might 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 the 30th of June, 2023 earnings release, which is available on the Synergy website again, www.synergymaritime.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 Santanis. Please go ahead, sir.

Thank you, Operator. Hello, I would like to welcome everyone to our conference call. Today we are presenting the financial results for the second quarter and first half of 2023, while also announcing the distribution of another cash dividend. I am very pleased to report a profitable quarter for Synergy, with our daily time-shutter equivalent outperforming the market index. we achieved a daily time shutter equivalent of $18,700, or 20% above the index average for the quarter, leading to a quarterly net revenue of $28.3 million and net income of $700,000. 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 Cape Size market recovered from the seasonal weakness seen in the start of the year, with the Baltic Cape Size Index averaging at $15,600, up from $9,100 in the first three months of the year. Demand for seaboard 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 is encouraging to see strong increased ton-mile demand for key raw materials and I am very optimistic that the negative effects of the low congestion have already peaked. During the quarter, we remained consistent with our shareholder distribution strategy while looking to expand our fleet through accretive opportunities. As we will discuss in more detail, we agreed to acquire a new Castlemax 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 continue to optimize our balance sheet through 54 million of refinancing 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 two and a half cents per share for the second quarter, which brings our total distributions since the commencement of our dividend program to $23.9 million or about a dollar and 33 cents per share. This represents a 23% of current price levels. Moreover, during the quarter, we repurchased about $1.6 million worth of our common shares at an average price of $4.35 per share, which is 25% lower than our current price levels. We always monitor our shares' valuations combined with the liquidity, and we may emphasize share buybacks over dividends in the future quarters. In any case, the total capital returned to our shareholders since the start of the program amounts to 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 has performed better than the Cape size market since the start of 2022, that's 18 months ago. In the past six months particularly, our TCE was 20% higher than the BCI. This is a result of our robust commercial performance, our hedging activities, as well as the investments made in improving our vessel's 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 $21,000 a day. and 21% of our days for the rest of the year are fixed at an average rate of 22,000. In terms of TCE guidance for Q3, we expect our TCE to be equal to about $16,100, and this is assuming that our ships will earn the current FFA rate. This is 22% higher than $13,200 average of the BCI in the third quarter to date. As regards to vessel transactions, in May, we agreed to add to our fleet, our first new Casper Max class vessel, which was built in 2011 at the Max shipyard in China. The vessel delivery is estimated to take place on about October 2023, initially through a 12-month verbal team charter, while Synergy 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 30.5 million. Upon delivery, we expect the vessel to be deployed in an index-linked time-chatter at a significant premium to the BCI. Lastly, on our commercial developments, we extended the duration of three of our time-chatters at the same or better terms as before. Since April, the Championship extended its existing time-chatter for a period of 24 to 30 months with a higher premium over the index, and a new fuel spread profit-sharing scheme for Synergy, receiving the majority split. In June, the charter of the partnership exercised the second optional period, with the extension period starting between August and November of this year, and also here a higher fuel profit-sharing scheme for Synergy. The same charter elected to extend the time charter of the Lordship, in direct continuation of the previous agreement. The extension will commence in October of 2023 and last until August 2024, with an increase in the Scrabble profit share accruing for Synergy. That concludes my rundown of this quarter's highlights, so I'm going to pass the floor to Stavros, our CFO, before returning for a brief market commentary.

Thank you, Stamati, 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-month period that ended on June 30, 2023. Amid a weaker than expected capesize market, our financial performance was satisfactory with net revenue for the quarter reaching $28.3 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, albeit once again in terms of TCE we outperformed the BCI 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. The respective figures for last year were 17.3 million and 34.2 million, respectively. Nevertheless, in the second quarter of 2023, we returned in profitability, recording a net income of 700,000, trimming the net loss for the year so far to 3.5 million. With the bottom of the market now in the rare mirror, we are optimistic that we will continue on a 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 dividend distributions and buybacks, we retained a solid cash position of approximately 22.5 million or 1.4 million per vessel. On the debt front, we retained a moderate debt ratio of 50%, while we achieved to even reduce our net debt since the beginning of the year by approximately 7%. The net debt at the end of the first half of the year stood at $212 million, a figure fully covered by the scrap value of our fleet based on current scrap prices. I will return to discuss our debt profile further in a moment. Let us now turn to slide 7 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 PCE of $18,700 per day in the second quarter and $14,760 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 a period that CapeSide's freight rates remained overall subdued. With an improved market outlook for the rest of 2023, we expect our financial performance to strengthen further. Meanwhile, our average daily operating expenses, excluding pre-delivery expenses, were $6,900 per day in the first half of the year, a figure very close to the levels recorded in 2022. The elevated OPEX are attributed mainly to price inflation in goods and services across the shipping sector as well as the global economy. Cash DNA, i.e. general and administrative expenses adjusted for certain non-cash items in the first half of the year, were 4.6 million. However, this figure includes administrative expenses incurred by Synergy in managing United Maritimes operations in exchange of which we have received in fees approximately $1.3 million in the same period. On that basis, our actual cash GNA was approximately $3.2 million or $1,100 per ownership day, which is very competitive compared to our listed peers. Let's now move to slide 8 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, the debt per vessel should have $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. The interest margin of the two sale and leaseback facilities are lower than the previous financings by 120 basis points and 50 basis points, respectively. In addition, with the refinancing of the championship 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 15 million of extra liquidity, which came to support our shareholder rewarding initiatives and the acquisition of the Titan ship, as discussed previously by Stamatis. 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 two-fold the debt per vessel levels. Finally, as regards to our cash interest expenses, these were increased 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 9. 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 averages at 15,000 per day. Based on our current operational capacity, even a small increase in the expected freight rates of the second half would lead to an EBITDA above the 50 million mark. Here it is worth mentioning that we have already fixed 21% of our ownership days at an average rate that exceeds 20,000. In addition, our new Newcastle MAX is expected to be employed at a significant premium over the BCI index. Given all these actions, and with a potential market rebound in progress, we expect that we will be able to increase our profits, enhance further synergies value and continue our shareholder rewards initiatives. This concludes my review. I would now turn the call back to Stamatis, who will discuss the market and industry fundamentals.

Stamati? Thank you, Stavros. 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 capeside shutter 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-adjusted vessel speeds observed particularly in the larger ore 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 dry bulk tonne mile demand in the first half of the year grew approximately 5.5%, while effective tonnage supply was up by 7.1%, according to broker reports. 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 tonne miles are expected to grow by around 3.3% and 2.5% in 2023 and 2024, respectively, with corresponding fleet growth of 2.9% and 1.9% respectively. Given that a large part of the 2023 deliveries have already taken place and that the trend of declining congestion seems to have reached the bottom over the past months, the balance seems quite positive. Moving on to Cape size demand. China iron ore imports in the first half of 2023 were up by 7.7% year-on-year, 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 lockdowns than we had initially anticipated, but we view the delay as reasonable given the magnitude of the economic setback. As iron ore inventories remain at low levels while steel production and exports have recently picked up steam, the eventual recovery in the general economy is forming very favorable conditions for the Cape size market. Looking beyond iron ore, seaborne coal exports have also seen significant growth this year, with full-year ton miles expected to be up by 5.4% according to research. Coal trade volumes are generally subject to seasonality, but the important thing is that higher average coal volumes are setting higher floor for the Cape size utilization 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. Regarding the general economic environment, it should be noted that since early 2022, the world economy dealt with a combination of unusual circumstances, punctuated by record high inflation, rising interest rates, and China being in a complete lockdown for three years. This is now mostly behind us. With significant higher ton-mile demand, China is still willing to support the market, as well as massive infrastructure projects globally. Moving on to Cape Shire's vessel supply, based on the limited outstanding order book, the outlook for the Cape Shire sector remains very encouraging. The CAPE size and VLOC order book schedule for 2023 delivery amounts to only about 1% of the total fleet with total order book across all delivery years being only about 4.8% of the existing fleet. The limited new building activity of the last few years has kept fleet growth at very low levels and CAPE size 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 chatter rates have been mainly a result of mostly short-term factors. These factors have led to an increase in effective tonnage supply, so it would be worth taking a few moments to discuss the main factors causing that. The first is the historical low fleet 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. The second factor would be increased vessel speed. It has been observed that in the main long-haul C3 route, many large ore carriers are sailing at excessive speeds, shoring up short-term tonnage oversupply. Needless to say that increased speeds have an exponential effect on the CO2 emissions. We have calculated that if those 100 ships reduce their speeds only by one knot, the annual reduction in CO2 emissions would be more than 500,000 tonnes. Overall, we expect the ship congestion to start increasing towards historical averages in the next months. In addition, the speeding ships should start abiding by the new environmental regulations. Once the temporary effective oversupply of ships is reduced, we strongly believe that the Cape Size freight rates should bounce back to much higher levels. Synergy is in a great position to deliver high returns in its 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 Cape Size exposure and our high quality fleet. On 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.

Dear participants, as a reminder to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. Please stand by while we'll compile the Q&A roster.

Now we're going to take our first question.

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. I wonder if we could start with the press release from July 6th, which included the repurchase details as well as the bare boat and charter acquisition of the new CastleMax. Can you start and why you structured the acquisition that way and the benefits of that structure, please, in this current market?

Hello, Tate. Good morning. How are you? Good, thank you. Excellent. So I'm going to start with the fact that the fleet of the company was reduced recently due to the sales of 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 not to spend too much of the cash of the company. And we found this bare boat agreement with very prestigious Japanese owners. And they accepted that we charter in 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 Castle Max vessel. At the same time, the cash outlay remains quite limited, so we have cash for other purposes as well, like stock buybacks or whatever. And the overall deal is a great deal because all things have been into consideration, the bear bought higher, the advance payments as well as the purchase option. The overall price of that vessel is quite low. It's lower than the recent transactions we've seen 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 in one of the remarks that it should have a premium to the BCY as a 2011 built vessel, and why is that going to be the case?

It does indeed, yes. Just to put things into perspective, we read in the filings of other companies that they have acquired Newcastle Max vessels for something in the region of close to $80 million, 8-0. Those ships, we understand they are chartered to the BCI at 145% to 150%, so 1.45%, 1.5%. This ship we bought for a fraction of that price, so we bought it for $30 million, $31 point something, and it's going to be chartered to the BCI at a 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 ship is going to be, I'm not going to say as good as, but very, very good premium over the BCI. So in respect of return on the investment, I say that this is incomparable.

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 bare boat period for $20 million, what do you need to see in the market to exercise that option?

I think 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.

Great. And one other for me, too, is you had high utilization in the second quarter. That was the main factor that caused the revenue to exceed my expectations of 99% highest in at least four quarters. Should that decrease in the coming quarters with any scheduled downtime?

I mean, we have pretty much reported all the dry docks that we have until the year end. We don't have any material dry docks until the year end. So I would assume that 98% to 99% is a safe assumption for the remaining of the year.

Oh, and then last one. Were any of the deposits made for the bare boat chartering in 2Q or all the payments related to that are in 3Q and the rest are in the second half of this year?

Hi, Dave. This is Thavros. The first 3.5 million have already been deposited. So there's only one 3.5 million deposit which remains at the delivery of the ship, which is estimated at the fourth quarter. So that's the only remaining outlay before we take delivery of the vessel.

All right.

Well, all right.

Excellent.

a great material update. Have a great rest of the day. Thank you both.

Thank you, Tate.

Have a great day.

Bye-bye.

Thank you.

Now we're going to take our next question. Please stand by.

And the next question comes from the line of Christopher Scare from Arctic Securities. Your line is open. Please ask your question.

Hello, gentlemen. Congrats on another great course of Hello, thank you. So regarding the Nuke Castle Max acquisition, it seems like a great deal and obviously you're getting quite a good premium compared to conventional capes, running nukes compared to BTI. And from a strategic standpoint, are you looking to add more nukes or It is just sort of a one-off.

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 to trade. So these 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 we trust and we have excellent relationship for the last many, many years. So overall, you know, if they're good takers for the ship, if it's a good quality, we might as well look at additional new custom axes or capes under this structure. But it's not that we're open for new acquisitions. Overall for us, it's, you know, a more, you know, a general approach over, set holder rewards as well. So, you know, for us it's going to take, it will have to be a very good deal to take it into consideration.

Thank you. And sort of when we're looking at asset values now, it seems to be sort of quite disconnected to time transfer rates. So what's your view on the current disconnection and sort of, I mean, something has to give here. at least when we're looking at this from a historical perspective. What's your view? What's holding the values up now?

That's a great question. First of all, if you look at the buyers for the Cape size and the Newcastle Maxis since the beginning of the year, if not for the last two years altogether, they're very, very serious players. You don't have speculative acquisitions. on the Cape. So you see names that you know that are very serious players, and for them it represents a great value in their investment, as it is for us. So what we see in the value of a Cape-sized vessel, knowing that the overall order book on an annual basis is around 1 to 1.5 percent, there's zero, almost zero order book going forward. The fleet is getting older. We have the new regulations coming in. The best fundamentals right now, they appear to be in the CAPES and the Newcastle MAX segment. People see that there's a lot of liquidity coming from other segments of the shipping universe, like container ships and tankers, and splashing 30 to 50 million depending on the age of the vessel to acquire tonnage, or 20 to 50 million. For some people, it might be a rounding error. But overall, you see very serious players getting back into the game.

And in my opinion, that's a good sign. Thank you.

And so looking at your traveling strategy, you obviously taking on some coverage, which has been well-timed, I must say. So another great job done there. But what's your view going forward and what rate would you need to see in order to book quite a lot of 2024 days?

Well, for 2024, I cannot give you an answer because 2024 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 2024. I would like to remind everyone on this call the fact that even though people are saying that the average fleet speed is lower than what it used to, that's actually not correct. If you look at the deadweight adjusted speed of the fleet, it's actually much higher. So if you look at all the ore carriers on C3, ships between 250 and 400,000 tons, most of them are going with 14, 15, 16 knots. In my opinion, that's completely inexplicable. you know, going at this kind of speeds and emitting this kind of CO2 up in the atmosphere. So one way or another, they will have to abide by the new regulations and they will have to cut speeds. We have told many, many times that 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 ore carriers can speed up to these excessive speeds. And that creates a big and temporary oversupply of tonnage. Once that is more regulated and more controlled and disciplined, I expect we're going to see a better market. So to answer your question about 2024, it's the first year that you have not only the CII and the EXI, but also the EU ETS, and that's going to be the first monetary impact for many people calling or not calling EU, because there's going to be more discipline on the speech. So we're all very much more optimistic for 2024. I'm not going to give you a number about my projections, but I wouldn't be too soon to fix something for 2024 going forward.

Great. Thanks a lot. Yes, I look forward to 2024. Thank you. Thanks a lot. Thank you.

Dear participants, as a reminder, if you wish to ask a question, please press star 11 on your telephone keypad. There are no further questions. This concludes today's conference call. Thank you for your participation. You may now disconnect. Speakers, please stand by.

Thank you, Nadia. Have a great day.