Title

Presentation

Seanergy Maritime Holdings Corp. beats earnings expectations. Reported EPS is $0.4, expectations were $0.12.

Operator: Thank you for standing by, ladies and gentlemen, and welcome to the Seanergy Maritime Holdings Corp. Conference Call on the Second Quarter Ended 30th June, 2023 Financial Results. We have with us, Mr. Stamatis Tsantanis, Chairman and CEO; and Mr. Stavros Gyftakis, Chief Financial Officer of Seanergy Maritime Holdings Corp. At this time, all participants are in listen-only mode. There will be a presentation following by a question-and-answer session. [Operator Instructions] 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 Seanergy website, www.seanergymaritime.com. To access today’s presentation and listen to the archived audio file visit Seanergy website following the Webcast & Presentations 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 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 second quarter ended 30th of June, 2023 earnings release, which is available on the Seanergy website, again, www.seanergymaritime.com. I would now like to turn the conference over to one of your speaker today the Chairman and CEO of the company Mr. Stamatis Tsantanis. Please go ahead sir.

Stamatis Tsantanis: 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’m very pleased to report a profitable quarter for Seanergy with our daily time charter equivalent outperforming the market index. We achieved a daily time charter 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 Capesize market recovered from the seasonal weakness seen in the start of the year, with the Baltic Capesize Index averaging at $15,600, up from $9,100 in the first three months of the year.

Demand for seaborne transportation remains strong, but charter rates came under pressure at 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’m very optimistic that the negative effects of the low congestion have already picked. 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 Newcastlemax 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 4 to discuss our shareholder rewards initiatives. Our Board has authorized the distribution of another regular quarterly dividend of $0.25 per share for the second quarter, which brings our total distributions since the commencement of our dividend program to $23.9 million or about $1.33 per share.

This represents 23% of current price levels. Moreover, during the quarter, we repurchased about $1.6 million worth of 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 the 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 5, which is an overview of our commercial developments. As you can see, our fleet has performed better than the Capesize 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 vessels efficiency over the years. In addition to energy-saving devices, about 3/5 of our ships are scrubber-fitted, allow 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 we expect our TCE to be equal to about $16,100 and this is assuming that our ships will learn 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 our fleet, our first new Newcastlemax 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 bareboat 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 charter at a significant premium to the BCI. Lastly, on our commercial developments, we extended the duration of three of our time charters at the same or better terms as before. Since April, the championship extended its existing time charter for a period of 24 to 30 months with a higher premium over the index and a new fuel spread profit sharing scheme for synergy, receiving the majority split.

In June, the charter of the partnership exercised the second option of 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 scrubber 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.

Stavros Gyftakis: Thank you, Stamatis. And welcome, everyone to our second earnings call for 2023. Let us start by reviewing the main highlights of our financial statements for the second quarter and six months period that ended on June 30, 2023. Amid the 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 PCE, 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 to 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 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 TCE 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 Capesize freight rate 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 G&A, 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 G&A approximately $3.2 million or $1,000 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 totaled $14.7 million, basically unchanged from the end of 2022. During the first half of 2023, we concluded $53.8 million of financings, 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 financing by 120 basis points and 50 basis points, respectively. In addition, with the refinancing of the championship sale leaseback, we have addressed all loan maturities until the second quarter of 2025, removing any potential threshold 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 twofold the debt per vessel levels. Finally, as regards to our cash interest expenses, this will increase in the first half of 2023, which was inevitable given today’s interest rate environment. However, our financing 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 average is at $15,000 per day. Based on our current operational capacity, even a small increase in the expected freight rates for the second half would lead to an EBITDA above the $50 million mark.

Here, it’s worth mentioning that we have already fixed 21% of our ownership base at an average rate that exceed $20,000. In addition, our new vessel marks is expected to be employed at a significant premium over the BCI index. Given all these actions and with the potential market rebound in progress, we expect that we will be able to increase our profit, enhance further synergy value and continue our shareholder revoice initiatives. This concludes my review. I would now turn the call back to Stamatis, who will discuss the market and industry fundamentals. Tamatin?

Stamatis Tsantanis: 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 Capesize charter rates have been negatively affected by the increase in the effective supply of tonnage without any material increase in the actual number of new vessels. The effective tonnage supply increase is a result of the reduction in port congestion to historical low levels and the higher deadweight 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 ton mile demand in the first half of the year grew approximately 5.5% and 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 ton 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 the large part of the 2025 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 Capesize 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 Capesize 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 Capesize 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 the complete lockdown for three years. This is now mostly behind us with significant higher ton-mile demand China stimuli to support the market as well as massive infrastructure projects globally.

Moving on to Capesize vessel supply based on the limited outstanding order book the outlook for the Capesize sector remains very encouraging. The Capesize and VLOC order book scheduled 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 over the last few years has kept fleet growth at very low levels and Capesize split growth in 2024 is not expected to surpass 1%. Despite the limited long-term fleet growth in the Cape market, during the first half of the year, the volatility in charter rates have been mainly a result of mostly short-term factors. These factors have led to an increase in effective 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 selling 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 even though 100 ships reduced their speeds only by one note, the annual reduction in CO2 emissions would be more than 500,000 tons. 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 effect of oversupply of ships is reduced, we strongly believe that the Capesize freight rates should bounce back to much higher levels. Seanergy is in a great position to deliver higher returns in this favorable environment, rewarding our shareholders through distributions remains our highest priority and we will continue doing so based on the strength of our pure-play Capesize exposure and our high-quality fleet. 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.

Operator: [Operator Instructions] And the first question comes from the line of Tate Sullivan from Maxim Group. Your line is open. Please ask your question.

Tate Sullivan: Hello. Thank you, good day. I wonder, if we could start with the press release from July 6, which included the repurchase details as well as the bareboat-in charter acquisition of the Newcastlemax. Can you start and why you structured the acquisition that way and the benefits of that structure please in this current market?

Stamatis Tsantanis: Hello, Tate. Good morning. How are you?

Tate Sullivan: Great. Thank you.

Stamatis Tsantanis: 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 and not to spend too much of the cash of the company. And we found this bareboat agreement with very prestigious Japanese owners. And they accepted that we 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 Newcastlemax vessel. At the same time, the cash outlay remains quite limited.

So we have cash for other purposes well, like stock buybacks or whatever. And the overall deal is a great deal because the — all things been into consideration, the bareboat hire the advanced 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.

Tate Sullivan: And did I hear you say…

Stamatis Tsantanis: That in one of the remarks that it should have a premium to the DCY as a 2011 vessel? And why is that going to be the case.

Stamatis Tsantanis: It does indeed. Yes. Just to put things into perspective, we’re at in the filings of other companies. that they have acquired new Newcastlemax vessels for something in the region of close to $80 million, 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 bolted for $30.51 [ph] million something — and it started — it’s going to be charged to the BCI the 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 same comparable.

Tate Sullivan: And then the last one on that thank you for the detail is, what in terms of buying the ship at the end of the 12-month bareboat period for $20 million. What do you need to see in the market to exercise that option?

Stamatis Tsantanis: 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.

Tate Sullivan: Great. And one other for me, too. You had higher utilization in the second quarter. That was the main factor that will cause the revenue to exceed my expectations of 99% highest in at least 4 quarters. any — should that decrease in the coming quarters with any scheduled downtime?

Stamatis Tsantanis: 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 the same assumption for the remainder of the year.

Tate Sullivan: Okay. And then last one for any of the deposits made for the variable charter in 2Q or all the payments related to that are in 3Q and the rest during the second

Stavros Gyftakis: Rest of this year.

Stamatis Tsantanis: I take this table. The first 3.5 million have already been deposited. So there’s only 1 in 3.5 million deposit, which remains at the delivery of the ship, which is estimated that the fourth quarter — so that’s the only remaining outlay before we take delivery of the vessel.

Tate Sullivan: All right. Excellent. Great to hear an update. Have a great rest of the day. Thank you, both.

Stamatis Tsantanis: Thank you, Tate. Have a great day. Bye-bye.

Operator: Thank you. Now we’re going to take our next question. Please stand by. And the next question comes from the line of Christopher Kay [ph] from Arctic Securities. Your line is open. Please ask your question.

Unidentified Analyst: Hello, gentlemen. Congrats on another great call

Stamatis Tsantanis: Hello. Thank you.

Unidentified Analyst: So, regarding the Newcastlemax acquisition, it seems like a great deal. And obviously, you’re getting quite a good premium compared to conventional capes of running mix compared to BTI and sort of from a strategic standpoint. Are you looking to add more news — or it is just a lot of a one-off?

Stamatis Tsantanis: 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 use the same chapters 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, there are good takers to the ship, if it’s a good quality, we might as well look at additional Newcastlemax or Capes under this structure. But it’s not that we’re open for new acquisitions. Overall, for us, it’s a more general approach over shareholder rewards as well. So for us, it’s going to take — it will have to be a very good deal to take it into consideration.

Unidentified Analyst: Thank you. And sort of when we’re looking at asset values now, it seems to be sort of quite disconnected to time charter rates. So what’s your view on the current disconnection and 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?

Stamatis Tsantanis: That’s a great question. First of all, if you look at the buyers for the Capesize and the Newcastlemax since the beginning of the year, if not for the last two years altogether, they’re very, very serious players. You don’t have like a 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 Capesize vessel knowing that the overall order book on an annual basis is around 1% to 1.5%, there’s zero, almost zero order book going forward, the fleet is getting older, we have the new regulations coming in. So, the best fundamentals right now, they appear to be in the Capes and the Newcastlemax segment.

So, 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 million to 50 million, depending on the age of the vessel, to acquire donuts, or 20 million to 50 million. For some people it might be a rounding error. So, but overall you see very serious players getting back into the game. And in my opinion, that’s a good sign.

Unidentified Analyst: Thank you. And sort of looking at your traffic strategy, you obviously have taken on some coverage which has been well-timed, I must say. So, another great job done there. But what is — what’s your view going forward and what rate would you need to see in order to book quite a lot of 2024 dates?

Stamatis Tsantanis: 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 250,000 tonnes and 400,000 tonnes, most of them are going with 14, 15, 16 notes. In my opinion, that’s completely inexplicable going at this, kind of, speed and meeting 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. 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 this excessive speeds, and that creates a big and temporary oversupply of tonnage. Once that is more regulated and more control and discipline, 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 XI, but also the EU ETS. And that’s going to be the first mandatory impact for many people calling or not calling EU because there’s going to be more disciplined on the speeds.

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.

Unidentified Analyst: Great. Thanks a lot. I guess, I look forward to 2024.

Stamatis Tsantanis: Thank you.

Stavros Gyftakis: Thanks.

Operator: Thank you. [Operator Instructions] There are no further questions. This concludes today’s conference call. Thank you for your participation. You may now disconnect. Speakers, please stand by.

Stamatis Tsantanis : Thank you, Nadia. Have a great day.