C3is Q2 2024 Earnings Call Transcript

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August 22, 2024

There are 3 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the C3IS Q2 2024 Financial and Operating Results Conference Call and Webcast. At this time, all participants will be in listen only mode with no question and answer session at the end. Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Mr.

Operator

Diamantis Ambiotis. Please go ahead, sir.

Speaker 1

Good morning, everyone, and welcome to our CPIS Second Quarter Earnings Conference Call and Webcast. This is Iamadis Andriotis, CEO of the company. Joining me on the call today is our CFO, Nina Pindia. Before we commence our presentation, I would like to remind you that we will be discussing forward looking statements, which reflect current views with respect to future events and financial performance and are based on current expectations and assumptions, which by nature are held in the uncertain and outside of the company's control. At this stage, if you could all take a moment to read our disclaimer on Slide 2 of this presentation.

Speaker 1

I would also like to point out that all amounts quoted unless otherwise clarified are implicitly stated in U. S. Dollars. Today, we released our earnings results for the Q2 of 2024. So let's proceed to discuss these results and update you on the company's strategy in the market in general.

Speaker 1

Please turn to Slide 3, where we summarize and highlight the company's performances, starting with our financial highlights. For the first half of twenty twenty four, we reported an adjusted EBITDA of 11,300,000 which is an increase of 5 55 percent compared to the 1st 6 months of 2023. Our adjusted net income came in at $7,300,000 an increase of 1790 percent from the 1st 6 months of 2023. Our Aframax tanker, the Afrappel II, contributed around 80% of the total revenues. Our vessels net book value was $87,400,000 at the end of June 24 compared to 75.2% at the end of December 23.

Speaker 1

That is following the delivery of a bulk carrier in April 2024. Our net cash balance was $45,500,000 at the end of June 24 compared to $9,000,000 at the end of December 23. This was a combination of 3 major items, net profit from our normal business operations, receivables of $6,000,000 recorded at the end of Q4 2023 that were collected in the first half of 'twenty four and the proceeds of around $12,000,000 from 2 share offers that took place in the Q1 of 2024. Our TCE for second half 'twenty four was 29,700 145 percent higher than the rate for second half twenty twenty three. The income from the Aframax tanker is the main contributor to this exceptional increase.

Speaker 1

On the fleet acquisitions, the company commenced operation with 2 handysize carriers with a total fleet capacity of 64,000 deadweight. Since then, we acquired an Aframax tanker of 115,000 deadweight in Q3 'twenty three and in Q2 'twenty four, a 33,000 deadweight bulk carrier, bringing the total current fleet capacity to 213,000 deadweight with an average age of 13.5 years. The total fleet capacity has increased by 2 34% since the company's inception. As stated in press releases, the company received a return notification from Nasdaq as the company's shares were below $1 for 30 consecutive days, which is a minimum share bid price for continued listing on the capital market. In order to regain compliance, the company affected the 1 for-one hundred reverse stock split of the company's common stock in April 24.

Speaker 1

Slide 4 shows the drybulk trade by the end of Q2 2024. Iron ore is the number 1 drybulk trade commodity. Trade is restricted on very few routes such as Brazil China and Australia China with the Pacific basin being predominant. Other major importers are Japan, South Korea, Western Europe and the Middle East. In January May 24, global exports of iron ore reached 672,100,000 tons according to AEXS Marine Vessel Tracking Data.

Speaker 1

This is a 5.3% increase year on year. In January May 24, global imports of iron ore reached 694,600,000 tons according to the same source. This was an increase of 5.7% year on year. Coal is still the 2nd most traded dry bulk commodity. Global coal trade continues to grow with 2023 volumes being an all time record high.

Speaker 1

Growth in imports to China, India and Asian is compensating for decline demand from Europe and Japan. In January May 24, global exports of coal reached 556,800,000 tons according to AXS, and this was a 2.5% increase year on year. In January May 24, global imports of coal reached 554,300,000 tons, which was a 2.2% increase year on year. Global seaborne soybean trade reached 149,200,000 tons in 2023, and this was the highest volume since 2020. Trade was dominated by Chinese imports, which account for 2 thirds of volumes, with Europe a distant second.

Speaker 1

Main exporters are USA and Brazil with smaller volumes coming from Canada and Argentina. Global seaborne wheat trade reached 149,700,000 tons in 2023. Trade was dominated by exports from the EU and the Black Sea region, as well as the USA and Canada. There has been a significant increase in volumes from Russian and EU ports replacing Ukrainian ports and imports are primarily to the MENA region, China and Southeast Asia. In January May 24, global exports of wheat reached 74,700,000 tons according to AXS and this was a 19.8% increase year on year.

Speaker 1

25 percent of exports were shipped from Russia, 23% from EU, 14% from Australia and 12% from Canada. Global seaborne coarse grains trade reached 164,300,000 tons in 2023. Trade was dominated by exports from South America, the USA and the Black Sea region, while in January May 24, global exports of coarse grains reached 65,500,000 tons according to AXS, and this was a 12.8% increase year on year. On Slide 5, we see that the dry bulk market is enjoying healthy earnings due to major support from the Red Sea diversions, geopolitical uncertainty in the Russian and Ukraine war, the Middle East, a potential escalation in the U. S.-China trade war and OpEx oil market gains.

Speaker 1

Dry bulk demand is expected to increase by 3.6% in 2024. Improvements in demand have been highly supported by firm Chinese demand for dry bulk commodities, while rerouting away from the Red Sea area and restrictions imposed in Panama Canal transits further support dry bulk ton mile demand growth. After contracting by 1% in 2022, minor bolt on mild trade increased by 3% in 2023, while it is expected to increase by 5.2% in 2024 and 2.7% in 2025. The Handysize 1 year TC rates had an estimated year on year increase of 15.5% in June 24 at around $30,750 per day. In January, December 23, the Baltic Handysize TC equivalent averaged $10,557 per day, a decrease of about 50% year on year.

Speaker 1

In January June 24, the Baltic Handysize TC equivalent averaged $12,560 per day and that was an increase of about 24% year on year. Moving on to Slide 6, the crude tanker demand is projected to grow by 3.5% in 2024, following several years of strong growth. This is bolstered by 1.9% increase in the average haul distance, driven by growing long haul atrangle exports from the U. S, Brazil and Guyana, as well as refinery startups in Asia. This growth is largely driven by 15% increase in exports from the Americas between 2023 2025, contributing to over 8% of the projected global volume growth.

Speaker 1

Asia is expected to continue leading import growth, accounting for approximately 6% of the projected increase. Despite the ongoing crude oil production cuts enforced by OPEC members, industry participants believe that the tanker market environment will remain healthy through 2025. Tanker demand outlook remains robust, supported by growth in crude oil trade volumes as well as by trade partnerships arising from H3 diversions benefiting long haul routes, thus boosting ton mile demand. Seaborne crude oil trade has been supported by increasing demand from China and rising exports from suppliers in the Americas. On the tanker spot rates, after a strong Q1, 2nd quarter was slightly weaker with crude oil tanker earnings falling by 13% on average in Q2.

Speaker 1

Aframax and Suezmaxes continue to match or even outturn their VLC peers, thanks to the boost they received from disrupted Russian flows. In June 24, the Baltic Exchange Dirty Tanker Index averaged 1223 points from 1086 points in June 23, and this is an increase of about 12.6% year on year. Slide 7 shows the Handysize fleet agent growth. The order book for Handysize dry bulk carriers stood at 9% of the existing fleet as of May 24. Compared to year end 2023, the order book for handysize dry bulk carriers declined by 12.4%.

Speaker 1

Almost 40% of the handysize dry bulk carrier fleet is between 10 to 14 years of age, while a total of 27% of the trading fleet is estimated to be 15 years or older. On the fleet growth, the dry bulk carrier order books stood at historically low levels at 9.3% at the end of April. 8.6% of the total drybulk carrier fleet is older than 20 years of age. The total drybulk carrier fleet grew by 3.1% in 2023 and is currently expected to grow by 3% in 2024 and by 2.5% in 2025. Compliance with new environmental regulations coupled with an overage fleet might induce scrapping thus reducing available fleet supply.

Speaker 1

On the fleet growth side, the handysize dry bulk carrier net fleet growth stood at 3.2%. Analysts expect a supportive handysize drybulk carrier net fleet growth for the years to come, specifically net fleet growth is expected to grow by about 4.4% in 2024 and 3.5% in 2025. Slow steaming and retrofitting time as part of complying with new environmental regulations are also factors that are expected to reduce available fleet supply in the years to come. The outlook for the Handy Bulker market in 2024 is cautiously optimistic with room for gradual improvements. According to projections to current projections, the growth in bulk demand is expected to be slightly above fleet expansion, combined with a constrained delivery schedule and the potential for increased demolitions.

Speaker 1

Several factors, including the attacks from Houthis in the Gulf of Aden, the implementation of reduced vessel speeds and extended retrofitting time due to environmental regulations, coupled with the announced constraints in the Parma Canal, which are likely to last well beyond first half twenty twenty four, are poised to shape market dynamics. Slide 8 shows the Aframax tanker fleet age growth and order book. The global Aframax LR2 fleet now stands at 11 47 vessels. Of these, 205 vessels are over 20 years of age, accounting for about 17.8% of the total number of vessels. With a starting tally of 1134 vessels, the current fleet represents a change of 1 0.15% in vessel numbers over the year so far.

Speaker 1

Delivers are holding at levels above the total numbers of removals from the fleet, creating a net gain in the fleet equivalent to 1.15%. This increase is higher than the change noted in May 24, while compared to last year, we have seen a decrease in the trend noted. The order book now stands at 164 vessels, having increased by 3 vessels in June 24. Slide 9 shows the current fleet of C3IS. By the end of Q2 2024, C3IS owned and operated the fleet of 3 handysized dry bulk carriers and 1 Aframax oil tanker.

Speaker 1

In May 24, the company took delivery of the 33,000 deadweight dry bulk carrier, the Eco Spitfire, bringing the total fleet capacity to 213,000 deadweight with an average age of 13.5 years. All vessels have had their ballast water systems already installed. Furthermore, there are no immediate capital commitments for special surveys as the next one due is in Q3 2025. All vessels are unencumbered and currently employed on short to medium term period charters and spot voyages. Slide 10 shows a sample of the international charters with whom the management company has developed strategic relationships and has experienced repeat business.

Speaker 1

Repeat business highlights the confidence our customers have for our operations and the satisfaction of the services we provide. The key to maintaining our relationships with these companies are high standards of safety and reliability of service. I will now turn over the call to Inup India for our financial performance.

Speaker 2

Thank you, Diarmatidis, and good morning to everyone. Please turn to Slide 11, and I will go through our financial performance for the second quarter and first half of twenty twenty four. Voyage revenues for the 3 months ending June 30, 2024 amounted to $10,800,000 corresponding to a daily TCE of $23,938 Compared to Q2 'twenty three, our net revenues increased by 403 percent and our TCE was up 185% from Q2 'twenty three. This was mainly due to the contribution from our Aframax tanker, which is around 80% of our revenues. Our fleet operational utilization was 87.7% for the Q2 of 2024 compared to 89.6% for the Q2 of 2020 3.

Speaker 2

Voyage expenses and vessels operating expenses for the 3 months ended June 30, 2024 were €3,100,000 €2,000,000 respectively. For the Q2 of 2023, the figures were $174,000 $842,000 The increases in both voyage expenses and vessels operating expenses are attributed to the increase in the average number of vessels. Voyage expenses for the Q2 of 2024 mainly included bunker costs and port expenses of 2,500,000 dollars corresponding to 80% of the total voyage expenses. Operating expenses for the 3 months ending June 30, 2024 mainly included crew expenses of 1,500,000 corresponding to 55 percent of total operating expenses, spares and consumable cost of 300,000 corresponding to 15% and maintenance expenses of 300,000 dollars representing works and repairs on board the vessels corresponding to 15% of total vessel operating expenses. Management fees increased by 75% from Q2 2023 due to the increase in the average number of vessels.

Speaker 2

General and administrative costs were $600,000 and mainly related to the expenses incurred from the 2 public offerings and the reverse stock split. Depreciation recorded in Q2 2024 was €1,500,000 a 130% increase from Q1 of last year due to the increase in the average number of vessels. Related party interest and finance costs for the period was $900,000 and related to the accrued interest expenses as of June 30, 24, in connection with the €53,300,000 payable, which was the 90% balance payable on the acquisition prices of our Aframax tanker, Afropel II and our bulk carrier, Deacos Spitfire. The Afra Pearl 2 was completely paid off in July 'twenty four and the balance due on the Eko Spitfire is payable in April 'twenty five. Interest income of $433,000 for the quarter and 643,000 for the 6 months of 2024 were recorded and relate to the interest received from our bank deposits.

Speaker 2

As a result of the above, for the 3 months ended June 30, 2024, the company reported an adjusted net income of $2,900,000 compared to an adjusted net loss of $400,000 for the same period of last year. Adjusted EBITDA for the 3 months ended June 30, 2024 amounted to $4,900,000 compared to an adjusted EBITDA of $300,000 for the same period of last year. Unrealized loss on warrants for the 3 months ended June 30, 2024 was $14,500,000 and related to the net fair value losses of our Class B1 and B2 warrants and Class C1 and C2 warrants, which were issued during the Q1 of 2024 in connection with the 2 public offerings and have been classified as liabilities. This is a non cash item and does not reflect the operational profit of the company. Turning to Slide 12 for the balance sheet.

Speaker 2

The fleet book value as at the end of June 24 was €87,400,000 an increase of 16% from year end 2023 due to the addition of the bulk carrier, the Ecospic Fire. By the end of Q2 2024, our cash and cash equivalents was 45,500,000 dollars an increase of 402% from December 31, 23. The company has no outstanding bank debt. The financial liability of 54,700,000 relates to the 90% payable on the acquisition prices of our Aframax tanker Afra Pearl 2 and our bulk carrier, the Eko Spitfire. The Afra Pearl 2 was completely paid off in July 24 and the balance during the Eko Spitfire is payable in April 25.

Speaker 2

Concluding the presentation on Slide 13, we outlined the key variables that will assist us progress with our company's growth. Owning a high quality fleet reduces operating costs, improves safety and provides a competitive advantage in securing favorable charters. We maintain the quality of the vessels by carrying out regular inspections, both while in port and at sea and adopting a comprehensive maintenance program for each vessel. The company's strategy is to follow a disciplined growth with in-depth technical and condition assessment review. Management is continuously seeking a timely and selective acquisitions of quality vessels with current focus on short to medium term charters and spot voyagers.

Speaker 2

We always charter to high quality charters such as commodity traders, industrial companies and oil producers and refineries. The company maintains an adequate level of cash flow and liquidity that will enable us to act instantly as the windows of growth and opportunities open. Despite being in operation for just over a year and having increased our fleet by 2 34% since inception, the company has no bank debts. No interest were charged by the sellers of the 2 vessels acquired in July 23 April 24. At this stage, our CEO, Doctor.

Speaker 2

Diamantis Agniotis, will summarize the concluding remarks for the period examined.

Speaker 1

Following the completion of the 1st 6 months of operations in 2024, C3IS has reported an adjusted net income of $7,300,000 and adjusted EBITDA of $11,300,000 and an adjusted EPS of $1,68,000 We have taken delivery of our 4th vessel this year, bringing our total fleet capacity to 213,000 deadweight, an increase of 234% from the company's reception a little over a year ago. In July 24, we paid off the remaining balance of €38,700,000 on our Aframax tanker without resorting to bank financings. We have more than tripled our fleet capacity without incurring any bank debts. Shipping business is at a major turning point with a plethora of risks and opportunities, which are poised to shape market dynamics. These are mainly the declining global demand for major cargoes such as iron ore and coal, the increase in transportation of grain and minor bulk cargo, the decarbonization of customer value chains, the impact of market fluctuations and geopolitical risks.

Speaker 1

We are confident that we have established foundations that is adaptable to this change environment, thereby enhancing our fundamental ability to both further develop existing core businesses and explore new growth businesses. Looking ahead, we believe that earnings momentum will remain generally favorable, prompting our continued focus on our fleet growth strategy. We will continue to strive to produce both improved financial performance, attractive returns and growth prospects for our shareholders. We would like to thank you for joining us today and look forward to having you with us again at our next call for our Q3 of 'twenty four results.

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C3is Q2 2024
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