Seanergy Maritime Holdings Corp.

Thank you for standing by ladies and gentlemen and welcome to the Synergy Maritime Holdings Corp conference call on the third quarter ended September 30th 2023 financial results. We have with us Mr. Stamatis Santanis Chairman and CEO and Mr. Stavros Giftakis Chief Financial Officer of Synergy Maritime Holdings Corp. At this time all participants are in a listen-only mode. There will be a question and answer session at which time If you would like to ask a question, please press star 1 1 on your telephone keypad and you will then hear an automated message advising your hand is raised. Please be advised that this conference call is being recorded today, Tuesday, November 14th, 2023. The archived webcast of the conference call will soon be made available on the Synergy website, www.synergymaritime.com. Many of the remarks today contain forward-looking statements, based on current expectations. Actual results may differ materially from the results projected from those forward-looking statements. Additional information concerning factors that can use the actual results to differ materially from those in the forward-looking statements is contained in the third quarter ended September 30th, 2023 earnings release, which is available on the Synergy website again, www.synergymaritime.com. I would now like to turn the conference of it 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 third quarter and first nine months of 2023, while also announcing the distribution of another cash dividend. Starting with our commercial performance, I am pleased to report that in the third quarter, Synergy achieved a daily time chart equivalent rate of $15,300, once again overperforming the Baltic Hips as indexed by around 14%. This is a result of our strategic investment in improving the energy efficiency of our fleet, where the majority of our ships is obtaining premiums over the index, as well as our effective hedging strategy where we locked in about 30% of our fleet in fixed rates exceeding $20,000 a day. Concerning the performance of the Cape size market, despite the strong demand for seaborne transportation of iron ore, coal and bauxite in the first nine months of the year, congestion stood at historical low levels. Therefore, vessel utilization improved, expanding the effective fleet supply, which in turn has put severe pressure on the spot market. As congestion found bottom In July and August, the increased cargo flows resulted in significant supply tightness, which led to a recovery in day rates to levels exceeding $30,000 per day in October. Having entered the fourth quarter with 70% of our days taking advantage of the higher market, we are well positioned to benefit from the recent recovery of our sector. Notwithstanding the overall weak Cape market conditions, which impacted our financial results for the quarter, our cash reserves remain at satisfactory levels. On that basis, our board of directors has approved another consistent quarterly cash dividend of 2.5 cents per share. Regarding fleet developments, on October 24th, we took delivery of our first Newcastle Max vessel, which was renamed Titan Ship. The vessel was acquired through a 12-month bare-boat structure with a purchase option for synergy at the end of the charter. The vessel commenced an index-linked employment with a first-class charter for a period of about one year at a substantial premium over the Baltic Cape Size Index. This is actually the highest premium achieved by any vessel of our fleet. The addition of the Titan ship will further strengthen our ability to overperform the Cape Size Index. Combined with its attractive acquisition price, it will likely produce higher returns on capital. In terms of other commercial developments, we have extended various existing time charters of our vessels, while more and more ships get the increased benefit of the scrubber equipment installed in 2019 without us paying for it. Similarly, within 2024, we expect more vessels to enjoy improvements in the profit-sharing terms on their employment, which would provide an additional tailwind to our TCE. In terms of guidance for Q4, about 60% of our total fleet days have now been fixed at the daily TCE rate of $21,600. When applying the recent FFA rate of $15,700 for November and December on our open days, the average TCE rate for the period is expected at approximately $19,500. On a more optimistic note, if we apply the average Cape size pot rate since the beginning of Q4 2023, then the resulting TCE for the period is projected to be approximately $22,800 per day. Moving on to capital returns, our board has authorized the distribution of another regular quarterly cash dividend of 2.5 cents for the third quarter, which brings our total distributions since the commencement of our dividend program to about $1.36 per share, representing approximately 26% of our recent closing price. Returning capital to our shareholders will remain an important priority for us, and I am confident that our healthy balance sheet and low refinancing needs over the next two years will allow us to continue on the same path. That concludes my summary of third quarter developments and I am now going to pass the floor to Stavros, our CFO, before returning to discuss the current status and outlook of the Cape size market. So Stavros, please go ahead.

Thank you Stamati and welcome everyone to our third earnings call for 2023. Let us start by reviewing the main highlights of our financial statements. Our net revenue in the third quarter amounted to $24.5 million, while in the 9-month period it reached $70.8 million. Definitely a drop compared to the respective figures of 2022, as the freight market during the quarter remains subdued. However, we are pleased that we have outperformed the market in terms of time charter equivalent, as Tamatis mentioned before, highlighting Synergy's versatility in all market conditions. Meanwhile, our adjusted EBITDA was 9.5 million in the quarter and 29.1 million in the 9-month period. Finally, we recorded a net loss of 5 million in the third quarter, expanding the net loss for the 9-month period to 8.5 million. It is essential to consider the inflationary conditions under which we currently operate as they have had an impact on our overall costs. At the same time, the advantage we generally gain from vessels equipped with scrubbers was reduced in the third quarter because of the temporarily narrowing gap between high and low sulfur fuel prices. We are optimistic that our freight hedging strategy, along with the already observed improvement in spot rates in the recent months and the widening fuel spread, along with improved profit sharing scheme on some of our vessels, should result in improved financial performance in the current quarter. Moving on to our balance sheet, our cash position remained practically unchanged at $22 million. This allowed us to continue returning capital to our shareholders by maintaining the regular dividend distributions. Now on the debt front, aggregate balances dropped to $223 million, with our market value-adjusted loan-to-value ratio remaining at 52% despite the correction in vessel values. We consider such debt levels to be sustainable, while after the 54 million refinancings completed during the first half of the year, we have no debt maturities, no balloon payments at least, until the second quarter of 2025. This arguably illustrates the financial health of our company and our ability to weather the volatility of the market by managing successfully our short-term liquidity needs. As regards to our cash interest expense, these were increased in 2023 so far due to the high interest rate environment. However, our recent refinancing transactions at improved pricing terms did partly mitigate the steep increase in base rates. With regards to new transactions, as briefly mentioned by Stamatis, we have recently completed the bare boat agreement for our first new Castlemax, the Titan ship. Following a down payment of 7 million, split in two equal installments paid in the second and the fourth quarter, the agreement provides for a daily rate of 9,000 over the 12-month period of the Burbo Charter, which will not burden our cash break-even. At the end of the Burbo Charter, we have a purchase option of 20.2 million, which we expect to exercise. In aggregate, the acquisition cost for the vessel following exercise of the purchase option will be approximately 30.5 million, which we feel is very competitive. This concludes my review. I would now turn the call back to Stamatis, who will discuss the market and industry fundamentals. Stamatis?

Thank you, Savro. Since the beginning of 2023, a significant increase has transpired in Cape size demand, as tonne miles relating to iron ore, coal and bauxite have increased substantially by up to 8%. In comparison, the size of the Cape size fleet has increased by approximately 2%, which clearly highlights the favourable fundamentals in the dry bulk market. Despite the healthy nominal supply and demand balance, the freight market did not respond as positively as initially anticipated. Quite the opposite, actually. The main reason was the increased efficiency of the Cape-sized fleet and the significant decrease in congestion, which in turn added considerably to the effective supply of available vessels. Additionally, as highlighted in our previous earnings updates in August, we have also observed an increase in deadweight-adjusted vessel speed, resulting mainly from the operating vessels of the large ore carriers. This, we believe, is contradicting the emphasis placed on the reduction of the industry's carbon footprint. Going back to the reduced congestion matter, during the first nine months of the year, the levels of poor congestion fell to historical lows and reached a multi-year bottom in the summer months. Since the end of August, the reversal of this trend has reduced availability of vessels, with congestion starting to return closer to long-term averages. As a result, KPI's charter rates state an impressive recovery since the lows of the third quarter, rising to levels exceeding $30,000 a day in October from rates as low as $8,000 a day recorded earlier in the summer. Looking ahead, we remain positive about the prospects of the dry bulk market based on the lowest new building order book of recent decades and limited shipyard availability. Cape size fleet growth is expected to be lower than 1% in each of the next two years, suggesting that the expected trade growth will support high fleet utilization and healthy charter rates. Additionally, any curtailment of fleet supply resulting from stricter environmental regulations and temporary disruptions have the potential to improve the market balance significantly. Moving on to cap size demand, China iron ore imports until the end of September were up by 6.7% year-on-year, while inventories were down about 20%. Low iron ore inventories are driving increased demand for iron ore as steel production has also been in positive trajectory. Thus, we are seeing strong momentum in export demand in industries outside the local property market in China. Long-haul iron ore exports from Brazil had a significant 7% growth from last year and we are optimistic about the prospects for future increases based on high profit margins. As regards other capsized commodities, coal seaborne trade is up about 6.5% year on year, according to research, driven by a large increase in China imports. There is a massive order book of coal-fired power plants in China, as well as the Southeast Asia in general, so increasing coal usage to generate electricity seems to be on a stable path. Lastly, demand of bauxite exports out of Guinea has become another significant driver of cape-sized cargo flows, with exports rising about 24% year-on-year in the third quarter. Going forward, we expect this trend to continue to increase cape-sized tonne-mile demand. As a result, I believe that the fundamentals of the iron ore, coal and bauxite markets should support a healthy CAPE vessel demand over the next few years. Moving on to vessel supply, the outstanding order book for CAPE size and VLOC vessels is at its lowest point in several years, while the availability of shipyards to deliver new orders is extremely limited. The total CAPE size and VLOC order book is only about 5% of the existing fleet, with growth for 2024 expected to be lower than 1%. The decision to invest in new building vessels can be difficult to justify financially due to higher costs and technological uncertainty. Therefore, I believe it is highly unlikely that we will see any significant increases in the order book over the next two years, at least. Additionally, we have the acceleration of all existing and new environmental regulations, notably EEXI, CII and EU ETS. As a result, a gradual reduction of vessel speed to comply with regulations will also have to happen which will further limit effective vessel supply. As highlighted in our last earnings report, it has been observed that many large ore carriers are sailing at very high speeds. Since these increased speeds have an exponential effect on CO2 emissions, the only logical conclusion in our minds is that we will start to see a slowdown, especially to the extent that environmental emissions reduction is a more important priority over profits. Overall, the limited order book and the difficulties surrounding decisions to build new vessels are both contributing to a limited supply growth for the Cape size fleet. Concluding, with such a positive dry bulk market outlook, Synergy's high quality fleet and healthy financial standing is positioning our company favorably to achieve high retention investment and deliver attractive capital returns to our shareholders. This concludes our remarks, and I would like now to turn the call over to the operator and answer any questions you may have. So, operator, please take the call.

Thank you.

Thank you. As a reminder, to ask a question, please press star 1 1 on your telephone and wait for your name to be announced. To answer your question, please press star 1 1 again. We will now take the first question from the line of Tate Sullivan from Maxim Group. Please go ahead.

Hello, good day. Thanks for taking my question. Can you talk as much as are you built related to the fees from related parties and the increase in general in administration expenses? I think you've mentioned before you're building your own ship management business. Is that part of the reason for the higher general and administration expenses, and should that continue going forward, too?

Yes. Hi, Tate. Good morning. I hope all is well. Nice to hear from you. Well, we actually have increased GNAs, but at the same time, we're compensating about $600 per day from United. So yes, GNAs are a little bit up, but we compensate that to a large degree from the fees associated with United Maritime.

And do you have a ship management business? And could you start to manage ships from other fleets? Or is that, or am I incorrect?

Oh, of course, of course, yes. I mean, right now the vast majority of the fleet under our ownership is under the Synergy Ship Management. So the answer is yes. We consider ourselves a very premium provider of ship technical management and commercial management services so the answer is yes we can do other companies but now we're focusing to uh synergy and united we do maintain a few vessels in independent third parties uh for benchmarking reasons so we still maintain one or two companies and we have relationships with most of the independent third parts out out there uh for exchange of information and the knowledge and all that but the vast majority of uh Almost everything is under our roof.

And then on any scheduled, and you have a newer fleet at Cape size, most scuppers, is there any scheduled downtime for 2024 for modeling purposes?

Well, we have about three, four ships next year that will enter the dry docks. We don't consider any important or any particular difficult downtime altogether. I must say around 15 to 20 days it ships. So it's very, very minimal to the total operating days of a company. Okay.

And then have you seen any in the older fleet with Cape size, any indications recently of scrapping or not at all?

Well, you know, the oldest fleet, vessel on our fleet is 2009. So it's still considered, let's say, middle age it's still considered older and it still operates very successfully and in very competitive terms with the rest of the fleet so we don't really feel any pressure whatsoever right now the market has opened a lot in various commodities that not necessarily require age limits so we're very much comfortable in the aids bracket of our fleet but most importantly I must remind everyone that there are no new building order book. It's very limited. It's the lowest order book of the last 20, 25 years. So we're going to have to leave with the ships that the current global fleet has right now. So, you know, eventually everything's going to get a bit older in the next few years.

Oh, and outside of your fleet, no recent transit scrapping. I have not seen anybody.

Correct, yes, yes. We don't see any material trends in scrapping. However, we believe that from next year onwards, 2024, that the total combination of the environmental regulations is going to be hitting the market, that many ships will not be able to compete with the rest of the fleet. So regardless of age, there are certain yards in the past that have not managed to make ships that will fit the environmental profile of the fleet of tomorrow. Let's put it this way, even though it's still the same vessels. And those ships will need to be either significantly upgraded or they will have to exit the trade.

And Stavros, one last one for me. You mentioned higher interest costs, interest expenses. In 24, can you give us a rough approximation of where your current floating rates are today?

Look, in total, the refinancing that we have done have resulted in our margin, what we pay above the base rate, to be in the region of 2.5% to 3%. So nowadays, SOFR is around 4.5% to 5%. So the all-in cost is around 7% to 7.5%. So in terms of projections going forward, we expect interest rate, quarterly interest rate expense to be, the cash expense to be around 5 million. And then going into 2024, since the loans are amortizing pretty steeply, so the outstanding balance will be decreasing, we will go down to 4.9, 4.8, and so on. In terms of breakeven, I would say that you should have in mind around 2,800 per vessel per day in our cost breakeven attributed to interest.

Well, thank you both. Have a great rest of the day. You too. Nice to hear from you. Thank you.

Thank you. We will now take the next question. It's from the line of Christopher from Arctic Securities. Please go ahead.

Hello, guys. How are you?

Hey, good morning. Good afternoon. Everything's fine. Thank you.

Good morning. Yeah, congrats on the quarter and obviously good guiding. Can you please elaborate a bit on the bulkhead trade and how it will affect the Cape size market and There's a lot of talk in the market about this now. I mean, typically, first quarter has been the weakest one, but do you see any structural change here over the coming years?

Well, yes. Most importantly is the fact that from 2024 onwards, we will see the acceleration of all the new environmental regulations. that so far they have been in place, some of them, but they have not really been enforced. So 2024 is going to be the first recording year of all the new environmental regulations. So the EXI will kick in full-fledged, CII as well. But most importantly, and what will have the first monetary impact for the owners, is the EU ETS. And we still have a lot of dischargings in EU. So that is going to be the first real pain So, as I mentioned to Tate before, we strongly believe that many ships will either have to slow down significantly or will have to be upgraded considerably in order to be competitive for the next few years. We have seen a massive increase in demand arising from China and other places year and year, anywhere between 5 and 9 percent, so the volumes are tremendous. If the effective supply of vessels is a little bit more moderate because of speed, congestion and other reasons, I believe we can see very big spikes in the market starting in 2024, and that's only going to get better for us going forward, much better.

Okay, thanks. So going back to this bulkhead trade out of West Africa, Is this something you see in the increase lately and how much are you involved in this trade?

Okay, I get it. Yes, Guinea is increasing a lot and we're going to have the Simandou, which is iron ore also arising from West Africa. Yes, volumes are picking up a lot. I don't want to focus only in bauxite because that by itself is a big growing problem. trend by itself, but the overall demand, tonne mine demand for raw materials like iron ore, coal, and of course bauxite, it appears to be continuing, you know, progressively in the next few years. So yeah, bauxite is significantly up, but it doesn't really compare on an absolute basis to iron ore and coal cargos. The increase we've seen in millions of tonnes over the last year, year on year.

Okay.

Thank you very much, and congrats again. Thank you very much. Nice to hear from you.

Thank you. We will now take the next question from the line of Michael Haim from Noble Capital Markets. Please go ahead.

Thank you. I do not see any mention of any share buybacks during the quarter, and the shares have been a little bit weak since the quarter has ended. Do you feel that you have the balance sheet and the cash flow to make repurchases if the opportunities arise? And how do you prioritize share repurchase versus paying down debt?

That's a great question, and thank you for asking this. Good morning. The answer is that we do prioritize on a number of things right now, but most importantly is the cash flow of the company. We still have a dividend in place, which we intend to continue for the foreseeable future. So right now, in respect of giving back money to our investors, I think that's been a priority that we want to continue. Year to date, the Cape size market has had the worst period of the last five, six years. So in the beginning of 2023, we're anticipating a much better freight rate environment. Unfortunately, it didn't meet our expectations. It was far below our expectations. So we decided to maintain cash flow as much as we can in order to sustain a good cash and healthy balance. The only upcoming buyback that we have until the end of the year is a $3 million small outstanding convertible that we're going to repurchase. And that's it. And I think that is a significant repurchase by itself. And so far this year, we've done quite a few repurchases. And I've done purchases from the open market myself. So altogether, it's maintenance of cash. We believe 2024 is going to be a better year. But since we were a bit disappointed in 2023, we prefer to have good cash maintenance. And of course, the principal repayment of our debt, as Stavros mentioned before, is quite steep, so we want to have the proper cash flow in place to deal with all the cash flows that we need to deal with in the next few months.

Thank you.

You're very welcome. Thank you.

Thank you. There are no further questions at this time. I would now like to turn the conference back to Mr. Stamatis Tsantanis for closing remarks.

Dear all, thank you very much for attending our call today. We look forward to catching up again in the next few weeks and months with other corporate developments. In the meantime, once again, thanks for attending our call. And thank you. You may disconnect now.