Seanergy Maritime Holdings Corp.

Thank you for standing by, ladies and gentlemen, and welcome to the Synergy Maritime Holdings Corp conference call on the fourth quarter and year-end of December 31st, 2023 financial results. We have with us today Mr. Stamatis Antonis, Chairman and CEO, and Mr. Stavros Skiftakis, 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 a question and answer session, at which time, if you wish to ask a question, please press star 1 and 1 on your telephone keypad. You will then hear an automated message advising your hand is raised. Please be advised that this conference is recorded today, Friday, March 15, 2024. 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 archive audio file, visit the Synergy website, following the webcast and presentation section under the investor relations page. Please now turn to slide two of the presentation. 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 cause the actual results to differ materially from those in the forward-looking statements is contained in the fourth quarter and year-ended December 31st, 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 Santonis. Please go ahead, sir.

Thank you, operator. Hello. I would like to welcome everyone to our conference call. Today, we're presenting the financial results for the fourth quarter and full year period of 2023, together with an update on our main corporate developments. Let's move into slide number three. 2023 was one of the most volatile years for the Cape size market. We experienced a wild range of rate rates, that bottomed at $2,200 per day in Q1 and peaked at almost $55,000 a day in Q4. Despite this extreme volatility, Synergy was very well placed to take advantage of a strong rebound in the capesize market that transpired in the fourth quarter of 2023. As a result, we delivered another profitable year, building on our robust commercial performance, our hedging activities, and the investments we have made in improving our vessel's efficiency over the years. In doing so, we have successfully navigated the extreme freight rate instability and achieved a healthy mix of fleet growth, accretion, and cash dividends. We ended the fourth quarter of 2023 with a net income of approximately $10.8 million, which compares very favorably with a net income of $0.5 million reported in the fourth quarter of 2022. Following a strong 2023 fourth quarter, the capesize market is currently undergoing the best first quarter since 2011. This is a result of higher raw material trade flows, limited fleet growth over the past year, as well as disruptions in key areas. Consistent with our commitment to reward our shareholders, our board of directors declared a total cash dividend of 10 cents per share, consisting of a special dividend of 7.5 cents on top of the 2.5 cent regular dividend for the quarter. This results in a dividend payout ratio exceeding 100% for the full year period of 2023, while we are currently evaluating our options to further increase capital returns to our shareholders, provided that the underlying conditions allow. In addition to our cash dividend distributions, since 2023, we have completed 2.5 million in share buybacks, or about 2% of our shares, outstanding at an average price of $5.12 a which is about 44% lower than the current market price. Additionally, in December, we repaid the $3.2 million outstanding balance under our convertible note, addressing a long-standing legacy overhang over our share price while simplifying our capital structure. Apart from this, during 2023, we refinanced approximately $53.8 million of indebtedness, and following these transactions, there are no other debt maturities until the second quarter of 2025. We are pleased to see Synergy making parallel progress in our strategic objectives of rewarding shareholders, taking advantage of growth opportunities, and maintaining a strong balance sheet. I would like to add that we view our balanced capital allocation as the best way to serve the long-term interests of our shareholders. Moving on to slide number four. Here we illustrate our priority in capital returns to our shareholders. Since March 2022, we have declared a total of approximately $26.4 million or $1.45 per share through a mix of regular and special cash dividend distributions. That represents about 16% of our current share price. In terms of buybacks, the total securities repurchased, including common stock, convertible notes and warrants, amount to approximately $41 million. Moving on to slide number 5. Here we review the commercial performance of our fleet. First, I would like to point out that we generally over-performed the BCI index. In a highly volatile CAPE size market, our 2023 TCE performance of $17,500 exceeded the Baltic CAPE size index average of $16,400 approximately. This makes two consecutive years of us overperforming the BCI index. In addition, we have focused on acquiring high-quality vessels to our fleet, comprised of Japanese vessels from the most reputable yards with significantly improved fuel efficiency characteristics. The qualitative improvement of our fleet that leads to increased earnings capacity is a continuous priority for us. Looking ahead to 2024, against the promising backdrop of the first quarter, we believe that our performance will remain solid. Assuming current FFAs, we expect our first quarter of 2024 daily time set equivalent to be equal to approximately $23,200. We have also taken advantage of the recent upswing in freight futures and hedged approximately 58% of our second quarter ownership days at a fixed gross rate of approximately $28,300. Concerning our fleet growth initiatives, during the fourth quarter we took delivery of a first Newcastle Max vessel which we had agreed to charter in on a per boat basis. The underlying acquisition price is well in the money, and since its delivery, the vessel commenced employment under an index-linked time charter at a significant premium to the BCI. Furthermore, in the first quarter, we agreed to acquire a cape-sized building in 2013 in Japan, and we expect to take delivery by the end of the second quarter. Both transactions have been very well timed. This concludes my recap of our developments in the fourth quarter and to date, and I am now passing the floor to Stavros before returning to discuss the outlook of the CAPE size market. Stavros, please go ahead. Thank you, Stamatis. Welcome everyone to our earnings call. Let us start with slide 6 by reviewing the main highlights of our financial statements for the fourth quarter and the 12-month period that ended on December 31, 2023. We actually had a great fourth quarter on the back of a very robust Cape-sized freight market and our effective operating platform. Our net revenues was equal to 39.4 million, 38% higher than the respective period last year, based on a time charter equivalent of 24,900. Our adjusted EBITDA and our net income were also significantly improved year-on-year, amounting to 23.9 million and 10.8 million, respectively. On an annual basis, our net revenues was equal to $110.2 million, slightly lower than last year due to the slower-than-expected cap-sized market recovery in the first nine months of 2023. However, we recorded an average time-sharter equivalent of $17,500, outpacing once again the BCI by approximately 7%. Our adjusted EBITDA was equal to $53 million and our net income reached $2.3 million reflecting the challenges faced earlier in the year. Moving on to our balance sheet, our cash position remained strong in 2023 at $24.9 million or approximately $1.5 million per vessel. This is despite consistent dividend payments, securities buybacks and hefty debt amortization schedules. In slide 7, it is evident that despite the weaker than expected CAPE size market during the first 9 months of the year, we achieved another profitable year with an adjusted EBITDA of 53 million. This can be attributed to our effective commercial strategy throughout the year, which helped us hedge against some of the downward market pressures. Additionally, our solid operating leverage allowed us to capitalize on the strength of the market in the fourth quarter. On the expense side, we retain our daily OPEX per vessel at practically the same levels with the previous year, despite the inflationary pressures. This reflects our strategic decision to increase the number of vessels managed on our in-house management platform. With all these actions, our adjusted EBITDA margin for the year remains strong at 48%, closely aligning with the previous year's performance. Moving on to slide 8, we discussed our debt optimization and overall deleveraging efforts throughout 2023. Starting with our debt structure, our debt outstanding at the end of 2023 was equal to $235 million. This includes loans, finance leases, and remaining payments under our bare-boat-in vessels, including respective purchase options, and corresponds to approximately $13.9 million per vessel, almost half of the average market value of our vessels, as per the end of last year. Our debt repayments reduced our corporate leverage to 47% during 2023, with more than 90% of our debt covered by the scrub value of the fleet, based on current scrub prices. Here, it is worth mentioning that Synergy achieved another significant milestone this year by fully repaying the last outstanding convertible note, totaling $11.2 million. During the year, we successfully concluded $53.8 million of refinancings, reducing the underlying pricing in overall terms while also adding $15 million in liquidity at that time. Equally importantly, we have now addressed all loan maturities until the second quarter of 2025. Meanwhile, we are in advanced discussions with a potential lender for the financing of our latest CAPESAS acquisition, as Tamatis mentioned earlier. This strategic move is anticipated to further enhance our interest margin profile and improve the overall structure of our debt. On the interest expense front, we did see an increase compared to the previous year, which was driven by the increased reference rate, despite the sharp decrease achieved in the interest margin of our facilities. We expect this cost to decrease in the coming quarters following the anticipated interest rate patch from the central banks. Moving on to slide 9. We highlight our great potential for profitability in 2024. We anticipate a significant increase in EBITDA compared to 2023, even if BCI rates average to the figure seen in 2023. If the current FFA curve materializes, our EBITDA profitability could be remarkable, reaching close to 115 million. It's worth mentioning that in 2023 our overall premium over the BCI for our fleet improved, reflecting our investments in the energy efficiency of our vessels and our effective commercial strategy. In addition, we have fixed almost 60% of our fleet days for the second quarter at an average rate of approximately 28,300. In summary, we remain optimistic about our profitability in 2024 and our overall liquidity, affirming our ability to continue rewarding our shareholders while enhancing the composition of our fleet. This concludes my review. I will now turn the call back to Stamatis, who will discuss the market and industry fundamentals. Stamati? Thank you, Savro. Let's move to slide number 10. Despite the gloomy predictions for 2023, ton-mile demand for the year was actually 6% higher as compared to 2022. That resulted in a much greater number of cargoes of iron ore, coal, and bauxite that exceeded an incremental of 170 million tons. As we repeated in our previous discussions, the freight rate volatility of the year was driven mainly by the effective supply of vessels during the year. Since the start of the fourth quarter of 2023, the Cape size market has strengthened considerably, which was carried forward into the Q1 of 2024. This has led to the strongest BCI average rate in more than a decade. This positive effect has also been apparent in asset prices, with KHI's values rising since the end of the third quarter between 20% and even 40%, depending on the vintage and individual vessel specifications. Moving on to slide 11. In the current year, our outlook remains very positive. The recovery in global manufacturing, as well as extensive infrastructure investments, may drive further growth in seaborn trade of raw materials. With the expectation of a gradually lower interest rate environment, manufacturing and infrastructure investments will continue to flourish. Overall, 2024 ton-mile demand growth for cape-sized cargoes is expected to be about 3.5% to 4% increased, And given the current momentum, positive demand growth is likely to continue into 2025, with projected ton-mile growth of around 2.5%. Moving on to slide 12. Turning to vessel supply. In deadweight terms, the order book for Cape-sized vessels currently stands at about the same levels of 2004, 20 years back. while replacement needs have grown considerably since then due to stringent environmental regulations. Overall, net cape size fleet growth is expected at around 2.5% in 2024 and 1.5% in 2025, both lower than the respective ton-mile demand growth in nominal figures. Beyond the low order book, fleet efficiency has returned to historical average levels, which suggests that effective fleet supply is unlikely to grow further, except for short-term events. Cape size vessel speed has already fallen in the past decade from about 12-12.5 to approximately 10.5-11 knots. Strong dry bulk markets in the past years have not resulted in speed increases and we believe that this trend is sustainable due to the implementation of CEII, EXI and other regulations that will affect the efficiency of the vessels. To close today's call, we want to emphasize that we are executing a clear strategy that includes rewarding shareholders through capital returns investing in our fleet to drive growth and efficiencies and maintaining a strong balance sheet. The actions we have taken to grow our fleet substantially over the past three years with quality assets and strengthen our financial position have placed Synergy in a prime position to benefit from a healthy freight market as the CAPE size segment enjoys the best demand-supply fundamentals in the dry bulk space. As a result, we expect to generate significant cash flows that will facilitate further shareholder value creation moving forward. This concludes our remarks and I would like to turn the call back to the operator and answer any questions you may have. Operator, please take the call. Thank you.

Thank you. As a reminder, to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, please press star 1 and 1 on your telephone and wait for your name to be announced. We are now going to proceed with our first question. And the questions come from the line of Tate Sullivan from Maxim Group. Please answer your question. Your line is opened.